As we informed you earlier this year, the Department of Labor issued a proposed rule raising the salary level for the white-collar overtime exemption to $35,308 a year, up from $23,660. The proposed rule also suggested raising the salary for highly compensated employees to $147,414 from $100,000. On September 27, 2019, the Department of Labor’s final rule was published raising the salary level to $35,568 a year for the white collar exemption and $107,432 for the highly compensated employee exemption. The Department of Labor did not make any changes to the duties test. This new rule goes into effect on January 1, 2020. For employers, this means that many exempt employees will become eligible for overtime pay, unless their salary is increased.
Under the Fair Labor Standards Act (“FLSA”), employers generally must pay employees 1.5 times their regular rate of pay for all hours worked in excess of 40 hours per week, unless they qualify for one of the statutory exemptions. To qualify for the “white collar exemption” to overtime pay, the following requirements must be met: (1) the employee must be paid a predetermined and fixed salary (“salary basis test”), (2) the salary must meet the minimum specified amount (“salary level test”), and (3) the employee’s duties must primarily involve executive, administrative or professional duties (“duties test”).
Given the Department of Labor’s recent rule, starting January 1, 2020, an employee must make at least $35,568 a year to reach the salary level test threshold. To determine whether this threshold is met, employers may now count nondiscretionary bonuses, incentives, and commissions for up to 10% of the salary level test. This increase in the salary level test will likely result in many currently exempt employees becoming eligible for overtime pay. This is so, despite the fact that employees may be managers or professionals and otherwise meet the eligibility requirements for the white-collar exemption. Thus, starting January 1, 2020, many employers will find themselves paying much more in overtime wages, or face wage violations, if they don’t adjust their employees’ pay. Overtime wage violations can result in serious monetary penalties.
If you have questions regarding this change in the overtime pay requirements under the FLSA, or any other wage and hour questions, contact an experienced employment attorney at Mesch Clark Rothschild.
