New DOL Overtime Rules Double FLSA Exemption Threshold

Finally, the much anticipated changes to DOL overtime regulations have been issued. Most significantly, the new overtime regulations will double the salary threshold effective December 1 and will be increased incrementally every three years.

Here is the down and dirty on the new rules:

Mercifully, the new regulations are not effective until December 1, which is at least longer than the 60-day period the DOL previously indicated.

  •  The salary threshold is doubled to $47,476 per year or $913 per week. Currently, workers earning more than $23,660 per year are not eligible for overtime, if they also meet the various duties test (i.e. executive, professional, or administrative duties). The new regulations leave intact the current duties test.
  •  The standard salary threshold will be adjusted every three years. The new standard salary level of $47,476 is projected to rise to more than $51,000 based on wage growth with the first scheduled update on January 1, 2020.
  •  For the first time, employers will be allowed to use non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the new standard salary level, as long as those payments are made on a quarterly or more frequent basis. (The rules also allow an employer to make a “catch-up” payment). Although the DOL recognizes that some businesses pay significantly larger bonuses, even where such larger bonuses are paid, the amount attributable toward the standard salary level is capped at 10% of the required salary amount.
  • The total annual compensation requirement for highly compensated employees (“HCE”) is $134,004.
  •  To be exempt as a highly compensated employee, the employee must receive at least the equivalent of the new standard salary of $913 per week on the salary or fee basis and pass a minimum duties test. For HCEs, employers cannot use bonuses to satisfy the minimum payment of $913 per week, but can use non-discretionary bonuses, incentive payments and commissions and other forms of non-discretionary deferred compensation to satisfy the remaining total annual amount of $134,004.
  •  The new regulations do not change any of the existing job duty requirements to qualify for exemption.
  • The DOL is offering clarification on higher education and non-profit employees. Although the final rule does not contain a carve out for colleges and universities, these entities will be given options to avoid paying overtime under the current FLSA. The DOL is releasing guidance aimed at higher education and non-profits.
While the December 1 effective date is longer than originally expected, employers need to begin examining the classification of their employees, not only as it pertains to the salary threshold, but to reaffirm that employees classified as exempt upon hire are in fact performing exempt duties in the course of their employment.

For managers who will now be supervising non-exempt employees for the first time, those managers need to be trained regarding the differences in managing a non-exempt workforce (i.e. making sure that time and off duty work are tracked).  Employers may want to consider utilizing a fluctuating workweek method of compensation, thereby reducing overtime to half-time. For clarification on how you might best prepare your company for these changes, contact a member of the Employment Law Team at Gentry Locke Attorneys.

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