Department of Labor Increases Salary Thresholds for FLSA Overtime Exemptions

By Lauren M. Drabic*

On September 24, 2019, the United States Department of Labor (“DOL”) announced its final rule increasing the salary thresholds for exemptions under the Fair Labor Standards Act (“FLSA”). The final rule sets the new salary threshold for “white collar” exemptions at $35,568 annually, or $684 weekly. Under the new rule, to satisfy up to 10 percent of this salary threshold, employers may use nondiscretionary bonuses and incentive payments (including commissions) that are paid at least annually. For the highly-compensated employee exemption, the new salary threshold will increase from $100,000 to $107,432 annually. The final rule (including the new salary thresholds) goes into effect on January 1, 2020. The changes will have a major impact on employers, as an estimated 1.3 million formerly-exempt employees will become eligible for overtime.

The FLSA generally requires employers to pay employees for any time worked in excess of forty hours per work week at a rate of one-and-a-half times the employee’s regular rate. The FLSA exempts “white collar” and highly-compensated employees from the overtime requirement, provided the employees meet specific criteria.

Employees qualify for an exemption by meeting three criteria: (1) the employee receives a fixed salary; (2) the salary meets the minimum threshold requirement (currently $455 per week, or $23,660 per year); and, (3) the employee’s responsibilities primarily involve executive, administrative, or professional duties. Highly-compensated employees who regularly perform one or more exempt duties also are exempt.

The final rule does not make any changes to the existing job duty requirements for the “white collar” and highly-compensated employee exemptions.

In light of the increases in the salary thresholds, employers should consult with counsel to ensure compliance with both the salary and duties tests. The change in the law presents a great opportunity for employers to evaluate whether they are properly classifying their employees as exempt under the FLSA and make any necessary corrections. The implications of misclassifying employees are significant and typically costly and may result in litigation or an investigation by the DOL. With just over three months to prepare and implement a plan to ensure compliance with the new salary thresholds, employers should establish a plan as soon as possible.

*Lauren M. Drabic practices in all areas of labor and employment law and is particularly adept at handling wage and hour issues. If you have questions about how the Department of Labor’s final rule may impact your company, please contact Lauren at lmd@zrlaw.com or 216.696.4441.