The U.S. Department of Labor issued its final rule amending the overtime regulations today, without any significant changes from the proposed rule the agency issued in March 2019.  Here’s the bottom line:

  • The salary minimum for exemption as an executive, administrative, or professional employee will jump from $455 per week ($23,660 per year) to $684 per week ($35,568 per year). The increase—the first in 15 years—is slightly higher than the threshold proposed back in March ($679 per week, or $35,308 per year), but nowhere near the boost the Obama Administration tried to roll out in 2016 (to $913 per week, or $47,476 per year).
  • Up to 10% of the salary minimum can be satisfied through nondiscretionary bonuses, incentives, and/or commissions that are paid annually or more frequently. Employers can make a “catch up” payment at the end of the year (or within one period after the end of employment, if employment ends mid-year) to bring an employee up to the $684-per-week minimum.  This effectively brings the weekly salary minimum down to $611.10 (provided there’s a later payment of bonuses, commissions, or incentives covering the final 10% of the minimum salary).
  • The threshold for exemption as a “highly compensated employee” will see a modest increase from $100,000 to $107,432 in total annual compensation.  That’s much lower than the $147,414 threshold in the proposed rule (and the $134,004 level in the dead-on-arrival 2016 rule), but it likely won’t matter to employers in states that don’t recognize this particular exemption for state law wage claims.

What’s not in the proposed new rule?  Automatic increases in the salary thresholds.  That was a hallmark of the 2016 rulemaking, and ill-received by the business community.  So any future increases would have to go through a notice-and-comment rulemaking process prior to being implemented.

So, all in all, a fairly straightforward new rule that won’t make a difference to employers in states with already-higher salary minimums for exemption (consider New York’s $58,500 annual minimum for most exempt executive and administrative employees in New York City, or California’s annual salary requirement of $49,920 for exempt employees of large employers).

The new rule will be take effect on January 1, 2020.  So employers with employees whose compensation will be affected by the new rule have some planning to do this fall.  The questions for those employers to answer include:

  • Will you raise salaries of exempt workers to the new minimums? Or will you reclassify them to overtime-eligible?
  • Will you take advantage of your right under the new rule to use bonuses, commissions, or other incentive compensation as a credit toward the new salary threshold?
  • Does your workweek coincide with the effective date of the new rule (a Wednesday), or does it begin, for example, on the Sunday or Monday before the change? If so, are you prepared to pay your exempt employees at least $684 for the work week in which January 1 falls?
  • If you will reclassify some employees to overtime-eligible:
    • What are your communication plans?
    • Are your colleagues in Human Resources, payroll, benefits, and elsewhere prepared for the change in classification?
    • Are you ready to manage the potential overtime costs?
    • Do your supervisors understand what kinds of hours are considered “hours worked” (g., certain travel time, time spent working from home or remotely, etc.)?
    • When will you start counting “hours worked” if January 1 falls in the middle of your workweek?
    • Have you considered the alternatives to paying reclassified employees on an hourly basis?

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