The U.S. Department of Labor this week issued a final rule establishing a minimum salary threshold of $35,568 for overtime eligibility under the Fair Labor Standards Act.
The rule impacts the white collar exemptions under the FLSA for executive, administrative, and professional employees.
In a Sept. 24 announcement, the labor department said the final rule would make an additional 1.3 million American workers eligible for overtime pay.
The threshold is slightly more than the $35,308 the department proposed in the initial draft of the rule.
Acting U.S. Labor Secretary Patrick Pizzella said the new rule "brings a commonsense approach that offers consistency and certainty for employers as well as clarity and prosperity for American workers."
The final rule updates the thresholds necessary to exempt executive, administrative, or professional employees from the FLSA's minimum wage and overtime requirements, and allows employers to count a portion of certain bonuses and commissions toward meeting the salary level.
The DOL said the increases "are long overdue in light of wage and salary growth since 2004," when the current $23,360 threshold was set.
The new rule:
- Raises the standard salary level from $455 to $684 per week, equal to $35,568 per year for a full-time worker
- Raises the total annual compensation for highly compensated employees from the current $100,000 to $107,432 per year
- Allows employers to use nondiscretionary bonuses and incentive payments, including commissions, that are paid at least annually to satisfy up to 10% of the standard salary level in recognition of evolving pay practices
- Revises the special salary levels for workers in U.S. territories and the motion picture industry
The final overtime rule has been over three years in the making, beginning in May 2016 when the Obama administration issued a controversial revision.
That revised rule increased the salary eligibility threshold for mandatory overtime pay to $47,476 from $23,660, or $913 a week from $455—a move that would have cost U.S. businesses more than $1 billion in labor costs.
In September 2017, a federal judge in the U.S. District Court for the Eastern District of Texas overturned that rule, calling the revised salary threshold "unreasonably high."
The judge said the labor department overstepped its authority, focusing too heavily on workers' pay, rather than job duties to determine overtime eligibility.
The labor secretary at the time suggested the department may issue a new rule with a more moderate salary threshold increase, possibly in the low $30,000 range.
With Connecticut's hourly minimum wage set to rise to $15 over the next five years, CBIA's Mark Soycher says the threshold change will have less of an impact here than in states with a lower minimum wage.
Employers should start auditing their exempt positions now to prepare for the new rule's Jan. 1, 2020 effective date to determine which employees may be affected and analyze potential risks.
Among the options for employers are reclassifying employees as nonexempt (which would require those employees to record actual hours worked) and paying overtime for all hours over 40, redistributing work to avoid overtime hours, or increasing an employee's salary.
Employers must be mindful of state law wage and hour requirements and exemption criteria, and should consult with legal counsel before attempting to navigate the precarious web of wage and hour laws.