Department of Labor Announces Final Rule Entitling Over 1 Million Formerly Exempt Employees to Overtime Pay
By Russell Landy, Partner, Damian & Valori LLP
On September 24, 2019, the U.S. Department of Labor (DOL) announced the issuance of a final rule entitling approximately 1.3 million more Americans to overtime eligibility.
The final rule increases the minimum salary required for white collar employees to qualify for an overtime exemption from the currently-enforced level of $455 per week ($23,660 per year) to $684 per week ($35,568 per year), and increases the total annual compensation for “highly compensated employees” (HCE) from the currently-enforced level of $100,000 per year to $107,432 per year, provided HCEs are paid at least the standard salary level of $684 on a weekly basis. The final rule is effective on January 1, 2020.
The Fair Labor Standards Act (“FLSA”) generally requires covered employers to pay their employees at least the federal minimum wage (currently $7.25 an hour and $8.46 under Florida law) for all hours worked, and overtime premium pay of not less than one and one-half times the employee’s regular rate of pay for all hours worked over 40 in a workweek. There are, however, several exemptions from the FLSA’s minimum wage and overtime requirements, including an exemption from both minimum wage and overtime protection for “any employee employed in a bona fide executive, administrative, or professional capacity … or in the capacity of outside salesman ….”
Historically, the regulations implementing the white collar exemption have generally required each of three tests to be met for the exemption to apply: (1) the employee must be paid a predetermined and fixed salary; (2) the amount of salary paid must meet a minimum specified amount; and (3) the employee’s job duties must primarily involve executive, administrative, or professional duties as defined by federal regulations.
The final rule, among other things, also:
- permits employers to use nondiscretionary bonuses along with incentive and commission payments paid at least annually to satisfy up to 10% of the standard salary level, as long as the bonuses or incentives are paid on an annual basis.
- permits employers to make a “catch-up” payment within one pay period of the end of the 52-week period in the event that an employee does not earn enough in nondiscretionary bonuses or incentive payments in a given year (52-week period) in order to retain his or her exempt status.
The final rule does not change the primary duties regulatory tests; revise the required duties tests of executive, administrative, or professional employees; apply any new or additional compensation standards to doctors, lawyers, teachers, or outside sales employees; change the computer employee exemption (other than the salary increase, as may be applicable); or include any automatic increases to the standard, special, or HCE salary levels.
Employers now have the obligation to track the hours worked of the newly non-exempt employees – among other previously unnecessary record keeping requirements.
Many employers will need to start making preparations in order to comply with the new salary levels by January 1, 2020. Employers should immediately review all employment positions previously classified as exempt where employees earn under $35,568 per year, and re-classify many new employees as non-exempt under the FLSA where applicable, or increase employee salaries so that they remain exempt. Further, employers must be aware of state and local laws requiring employee salary thresholds higher than the FLSA so that they can qualify for similar exemptions under state or local wage and hour laws.
In short, without making changes, employers of approximately 1.3 million Americans could be subject to lawsuits seeking to recover minimum wage and overtime pay, liquidated damages, and attorneys’ fees and costs should the employers not adapt to the new exemption rules.
This is a rapidly changing area of the law. If you have any issues concerning this area, please contact our office or another competent lawyer to determine the most current law and regulations and address their applicability to your particular situation.
About the Author: Russell Landy is a Partner at the law firm Damian & Valori LLP, and focuses his practice in the areas of Complex Business Litigation, Labor and Employment Litigation and Counseling, Business Torts, Real Estate and Community Association Litigation, and Contract Litigation. He can be reached at firstname.lastname@example.org or (305) 371-3960.