Legal Updates

This Time It's Not A Drill: FLSA Final Rule Expands Overtime Protections For Workers

The U.S. Department of Labor (“DOL”) recently published its long-awaited final overtime rule, tightening the requirements for employee exemptions from overtime eligibility under the federal Fair Labor Standards Act (“FLSA”).

Key takeaways include the following:

• As of January 1, 2020, the minimum salary required for a position to qualify for one of the “white-collar” exemptions from overtime eligibility will increase to $684 per week (the equivalent of $35,568 per year).

• The salary threshold for the “highly compensated employee” overtime exemption will also rise, from $100,000 per year to $107,432.

• Up to 10% of the minimum salary for an overtime exemption can be satisfied through non-discretionary bonuses and incentive payments (including commissions) paid on an annual or more frequent basis.

• The final rule does not change the “duties” tests applicable to the white-collar exemptions, or provide for any future, automatic increases to the minimum salary thresholds.

With the final rule set to go into effect at the beginning of 2020, employers with exempt employees who currently make less than $684 per week must decide very soon whether to reclassify those employees as non-exempt – and, thus, overtime-eligible – or to raise their salaries above the new weekly threshold.

Background

The FLSA governs, among other things, which employees are eligible for overtime pay under federal law. Under the FLSA, unless an employee qualifies for an exemption, he or she is entitled to be paid at a rate of at least one and one-half times the employee’s regular hourly rate of pay for all hours worked over 40 during any workweek.

The most significant overtime exemptions – known as the white-collar exemptions – include the executive, administrative, and professional exemptions. Each of these exemptions has its own specific requirements. In general, however, for an employee to qualify for a white-collar exemption, (i) his or her primary job duties must meet certain criteria (generally, involving the exercise of independence and discretion and/or decision-making authority with regard to other employees), and (ii) the employee must be paid a minimum weekly salary. (Certain categories of professionals, however – including teachers, doctors, and lawyers – do not need to be paid a minimum weekly salary, though they must meet the duties test for the professional exemption.)

Since 2004, the minimum weekly salary for the executive, administrative, and professional exemptions has stood at $455 per week. Thus, due to the effects of inflation, many employees who are compensated at a fairly modest level have been excluded from eligibility for overtime pay.

In 2015, the Obama Administration proposed far-reaching changes to the white-collar exemptions. These changes would have nearly doubled the minimum salary threshold, to $913 per week, in addition to providing for future, automatic increases to the minimum salary threshold, based on nationwide salary rates.

In late November 2016, days before these changes were set to take effect, a federal judge issued a preliminary injunction blocking them. Subsequently, that same judge issued a final order invalidating the proposed regulations, finding that only Congress had the power to impose such a substantial increase to the minimum salary threshold.
Since then, employers and workers alike had expected the Trump Administration to propose new, more modest changes to the overtime regulations. That process culminated in the DOL’s final rule.

DOL’s Final Rule

By raising the minimum salary for the executive, administrative, and professional exemptions to $684 per week, the DOL’s new rule will increase the number of overtime-eligible employees by approximately one million.

This increase from the current minimum salary level is only about half the increase that would have gone into effect under the Obama DOL’s proposed changes. As a result, while a legal challenge to the Trump DOL’s more measured final rule is not out of the question, the prospects for such litigation succeeding seem much less likely.

The final rule is likewise more modest in its increase of the minimum annual salary for the “highly compensated employee” overtime exemption, which can apply to high-salaried employees who meet some, but not all, of the duties tests for the executive, administrative, or professional exemption. Under the final rule, the “highly compensated employee” salary threshold will increase only to $107,432 per year from its current level of $100,000. By contrast, the Obama DOL’s proposed regulations would have set the new salary threshold much higher, at $134,004 per year.

Recommendations For Employers

With the final rule set to take effect on January 1, 2020, employers must act quickly to determine how these changes will impact them and how their compensation practices should be adjusted.

As part of this process, we recommend that employers:

• Determine which, if any, of their exempt employees are currently being paid at salary levels that fall below the new thresholds for exempt status;

• Decide whether to raise such employees’ salaries to at least the new minimum weekly amount, or reclassify such employees as non-exempt, in which event they will be entitled to overtime pay if they work more than 40 hours in a workweek;

• Provide affected employees with as much advance notice as possible of the changes to their status;

• Train any employees reclassified as non-exempt in proper timekeeping and any requirements for seeking advance authorization of overtime work; and

• Regularly review, in conjunction with experienced employment counsel, the FLSA classifications of their workforce as a whole, in order to ensure that employees are classified appropriately based on their job duties, compensation, and any other pertinent factors.

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Please do not hesitate to contact us if you have any questions about the new FLSA final rule or how it may affect your organization.