Stop, Overtime! Federal Rule Change Brings the Hammer Down on Overtime Rates

Jan 20, 2020 | Employment Law

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The U.S. Department of Labor (“DOL”) recently published a final rule making an additional 1.3 million American workers eligible for overtime pay under the Fair Labor Standards Act (“FLSA”).

Employers not specifically exempt under the Fair Labor Standards Act must pay overtime to nonexempt employees who work more than 40 hours in a work week. Overtime is paid at a rate of at least one and one-half times an employee’s regular hourly rate of pay. Salaried employees performing primarily executive, administrative, or professional duties are eligible for overtime pay, up to a salary threshold. Currently, DOL is enforcing salary thresholds set in 2004: $455 per week as the standard salary level ($23,660 per year) and $100,000 total annual compensation threshold for “highly compensated employees.”

In 2016, DOL published a final rule (“2016 rule”) to adjust overtime salary threshold levels. However, a coalition of states challenged the 2016 rule in the U.S. District Court for the Eastern District of Texas, and prevented DOL from implementing and enforcing the rule. In 2017, summary judgement was granted against DOL because the court concluded the rule was impermissibly constructed under FLSA’s minimum wage and overtime provisions. This decision invalidated the 2016 rule. As a result, the DOL continued to enforce the 2004 rule.

Because wages and salaries have increased significantly since 2004, DOL needed to adjust the salary threshold figures. Addressing the district court’s decision, public comments, and public listening sessions feedback, DOL promulgated a rule that seeks to distinguish between white collar employees and bona fide executive, administrative, and professional employees.

In its press release, DOL highlighted the following changes in the final rule:

  • Increase to the “standard salary level” eligibility threshold to $684 per week (equivalent to $35,568 per year for a full-year worker);
  • Increase the total annual compensation requirement for “highly compensated employees” to $107,432 per year;
  • Employers may use nondiscretionary bonuses and incentive payments paid at least annually to satisfy up to 10% of the standard salary level, in recognition of evolving pay practices; and
  • Revision of the special salary levels for workers in U.S. territories and the motion picture industry.

Overall, the adjustment accounts for wage growth using current data. DOL anticipates the final rule will allow a transfer of exempt to nonexempt status for 1.3 million employees nationwide. This change will become effective on January 1, 2020.

Because this final rule will increase the number of employees eligible for overtime pay, many employers should anticipate an increase to their budgeted wage and salary costs for 2020. In further anticipation of compliance, employers should conduct an audit of their workforce to evaluate how the final rule will affect their bottom line and ensure organizational overtime policies adhere to updated regulations.

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