On January 1, 2020, the U.S. Department of Labor’s (DOL) final regulation of the federal overtime rule became effective.
The final federal overtime rule updates the earnings thresholds necessary for an employer to exempt executive, administrative, or professional employees from the Fair Labor Standards Act (“FLSA”) minimum wage and overtime pay requirements. In addition, the new rule permits employers to count a portion of certain bonuses/commissions towards meeting the salary level.
The New Federal Overtime Rule Imposes 3 Key Changes
#1 The salary threshold for administrative, executive, and professional employees is raised to $684/week, or $35,568/year. The previous threshold was $455/week or $23,660/year.
#2 The Highly Compensated Employee threshold is raised from $100,000 to $107,432.
#3 Employers may use nondiscretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10 percent of the standard salary level
The DOL also did not change its job duties test. Also noticeably missing from the final rule is an automatic increase of the EAP salary threshold every three years. The automatic increase was initially proposed by the Obama administration, but received public opposition. Click here for an earlier blog on this subject.
The final regulation went into effect January 1, 2020. If employers have not done so already, they should audit their current workforce and identify any current exempt employees whose classification is impacted by the new salary threshold. Effective January 1, 2020, employers have to choose whether to increase their salaries or treat the employees as non-exempt and pay them in compliance with the Fair Labor Standards Act.
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