The U.S. Department of Labor’s (“DOL”) updated overtime rules to the Fair Labor Standards Act (“FLSA”) go into effect in less than 30 days. Specifically, on January 1, 2020, the updated overtime rules:
- Raise the salary threshold for the administrative, executive, professional, computer, and outside sales exemptions from $23,660 per year to $35,568 per year. (The last time these salary thresholds were raised was 2004.)
- Raise the salary threshold for the highly compensated employee exemption from $100,000 per year to $107,432 per year.
- Allow employers to use nondiscretionary bonuses and incentive payments, including commissions, to satisfy up to 10 percent of the salary levels detailed above, so long as they are paid at least annually. This change was made to recognize evolving pay practices where a compensation package often has several bonuses in addition to a base salary.
As background, under the FLSA, all employees must be paid overtime at one and a half times their regular hourly rate for all hours worked in excess of 40 hours in a workweek – unless an exemption to that overtime rule applies. The most common exemptions are the so-called “white collar” exemptions; those exemptions include (i) administrative, (ii) executive, (iii) professional, (iv) computer, (v) outside sales, and (vi) high compensated employees.
To qualify for one of those white collar exemptions, an employer must satisfy certain requirements. Specifically, the employer must ensure:
- An employee’s position receives a certain amount of compensation on a salary basis; and
- The job duties for the position meets certain requirements.
Stated differently, if an employee doesn’t receive a certain amount of salary and have job duties that qualify for one or more of the overtime exemptions, then the employee must receive overtime pay for all hours worked over 40 in a workweek. For a more comprehensive summary of the FLSA white collar exemptions, see the DOL’s guidance available online.
The updated overtime rules do not change any of the job duty requirements for any of the white-collar exemptions.
Due to the updated overtime rules, employers who do not already pay employees who are treated as exempt under one of the white-collar exemptions the higher salary threshold, then such employees will be entitled to overtime pay after beginning January 1, 2020. The DOL predicts that the updated rules will have a widespread effect – as an estimated 1.3 million U.S. workers will become eligible for overtime pay as a result of the increased salary threshold. For additional information concerning the updated overtime rule, see the DOL news release.