On September 24, 2019, the United States Department of Labor (“DOL”) announced its long-anticipated final rule regarding the earnings threshold for employees to qualify for “white collar exemptions” under the Fair Labor Standards Act (“FLSA”). This change marks the first of its type in over 15 years.
Under the FLSA, nonexempt workers are entitled to a minimum wage of $7.25 per hour and must be paid overtime at a rate of not less than one and one-half times their regular rates of pay after 40 hours of work in a workweek. However, not all employees are subject to the FLSA’s overtime pay requirements. Some employees are considered “exempt” from these requirements depending on their method of pay and the duties related with their position. In addition to requisite duties an employee must perform to meet these exemptions, the employee must also earn a minimum amount of money on a salary basis to be classified as exempt.
In its new final rule, the DOL:
1. Raises the minimum earning threshold from $455 per week to $684 per week in order to qualify as exempt (this equates to $35,568 annually for a full-time employee);
2. Slightly raises the total annual compensation threshold from $100,000 per year to $107,432 for “highly compensated employees”;
3. Now allows employers to use commissions, other incentive payments, and nondiscretionary bonuses to count toward up to 10% of the standard salary level;
4. Revises the special salary threshold for workers in United States territories and in the motion picture industry.
The DOL rule contains no alteration to the duties tests applicable to the various white collar exemptions. The rule also contains no regulation requiring the automatic increase in the salary thresholds over set periods of time as did a prior attempted DOL rule during the Obama Administration that was enjoined in court. The rule also does not include any increase to the federal minimum wage, which will remain at $7.25 per hour for the time being.
This final rule is set to become effective January 1, 2020. In advance of this effective date, the Firm’s Labor & Employment Practice Group is analyzing employers’ workforce pay practices and reassessing the application of white-collar exemptions to ensure compliance with DOL regulations. Please reach out to your contacts in the Firm’s Labor & Employment Practice if you have any questions or comments about this new rule.