This is an update of KJK’s previous article, Proposed Department of Labor Rule Could Have Significant Impact on Businesses.
On September 24, 2019, the Department of Labor announced its final new rule regarding the overtime exemptions of the Fair Labor Standards Act (FLSA). Below are the rule’s key aspects:
- The new rule will raise the salary threshold for the executive, administrative and professional exemptions from $455 per week (or $23,660 annually) to $684 per week ($35,568 annually). This new salary threshold will also apply to employees who fall under the computer employee exemption.
- The new rule will raise the highly compensated employee exemption from $100,000 to $107,432 annually. Of that amount, at least $684 per week/$35,568 per year must be paid on a salary or fee basis.
- To assist employers with meeting the new threshold, the Department of Labor will allow employers to use non-discretionary bonuses and incentive payments, including commissions, to satisfy up to 10 percent of the new salary threshold for executive, administrative and professional exemptions.
- The Department of Labor will not automatically increase the salary/compensation thresholds every three years (as was proposed in the 2016 final rule). However, the Department of Labor has been vocal about its intent to propose updates to the salary threshold regularly in the future, to ensure that the levels continue to remain current and up-to-date. The Department recently acknowledged that “fixed earnings thresholds become less effective over time,” and advised employers that they should be prepared for potential updates every four years.
- The new rule does not affect the duties test for “white collar exemptions,” nor does it affect the outside sales exemption or retail sales exemption.
The new rule will take effect on January 1, 2020, and it is estimated that approximately 1.3 million additional employees may become eligible for overtime in 2020.
While this new rule ends years of uncertainty, employers should not be complacent in addressing the change. Employers should begin examining their exempt employees now, and verify that they still remain exempt under the Department of Labor’s new rule. If not, employers should consider the possible application of alternative FLSA exemptions or determine other ways to respond to the new rule. Because the Department of Labor has advised that there will be additional updates in the future, employers may also want to implement an internal compliance feature to ensure that it continues to comply with the new rules moving forward.
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