U.S. Department of Labor Updates Overtime Rule

On September 24, 2019, the U.S. Department of Labor (“DOL”) announced a final rule that will purportedly make 1.3 million American workers newly eligible for overtime pay.  According to the DOL, the final rule updates the earnings thresholds necessary to exempt executive, administrative and professional employees from the Fair Labor Standards Act’s (“FLSA”) minimum wage and overtime pay requirements, and allows employers to count a portion of certain bonuses and commissions towards meeting the salary level.  The new thresholds are intended to account for growth in employee earnings since the thresholds were last updated in 2004.

The FLSA establishes a minimum wage, overtime pay, recordkeeping, and youth employment standards covering employees in the private sector and in federal, state, and local governments. Unless specifically exempted, employees are currently entitled to a federal minimum wage of not less than $7.25 per hour (New Hampshire law follows the federal minimum wage) and pay for hours worked in excess of 40 in a workweek at a rate not less than one and one-half their regular rate of pay, i.e. at “time and a half.”  This rate is referred to as “overtime” pay.

To qualify for an exemption from overtime pay under the new final rule, an employee generally must:

  1. be salaried, meaning that they are paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the “salary basis test”);
  2. be paid at least a specified weekly salary level, which is $684 per week (the equivalent of $35,568 annually for a full-year worker) under this final rule (the “salary level test”); and
  3. primarily perform executive, administrative, or professional duties, as defined in the Department’s regulations (the “duties test”).

Certain employees are not subject to either the salary basis or salary level tests (for example, doctors and lawyers). The Department’s regulations also provide an exemption for certain highly compensated employees (“HCEs”) who earn above a higher total annual compensation level ($107,432 under this final rule) and satisfy a minimal duties test.

Here are some key takeaways from the final rule:

  • raises the “standard salary level” from the current level of $455 per week to $684 per week (equivalent to $35,568 per year for a full-year worker);
  • raises the total annual compensation requirement for “highly compensated employees” from the current level of $100,000 per year to $107,432 per year;
  • allows employers to use nondiscretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10% of the standard salary level; and
  • revises the special salary levels for workers in U.S. territories and the motion picture industry.

The Department has also stated that it intends to update the standard salary and “highly compensated employees” total annual compensation levels more regularly in the future.

The final rule takes effect on January 1, 2020.  Before then, employers should review their employees’ wages and classifications of exempt status to ensure compliance.

About the Author: Lindsay Nadeau

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