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?

Subscribe to Proskauer’s Wage and Hour blog for more analysis of the new overtime rule and how it affects your business.

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Photo of Allan Bloom Allan Bloom

Allan S. Bloom is a nationally recognized trial lawyer and advisor who represents management in a broad range of employment and labor law matters. As a litigator, Allan has successfully defended a number of the world’s leading companies against claims for unpaid wages…

Allan S. Bloom is a nationally recognized trial lawyer and advisor who represents management in a broad range of employment and labor law matters. As a litigator, Allan has successfully defended a number of the world’s leading companies against claims for unpaid wages, employment discrimination, breach of contract and wrongful discharge, both at the trial and appellate court levels as well as in arbitration. He has secured complete defense verdicts for clients in front of juries, as well as injunctions to protect clients’ confidential information and assets.

As the leader of Proskauer’s Wage and Hour Practice Group, Allan has been a strategic partner to a number of Fortune 500 companies to help them avoid, minimize and manage exposure to wage and hour-related risk. Allan’s views on wage and hour issues have been featured in The New York TimesReutersBloomberg and Fortune, among other leading publications. His class-action defense work for clients has saved hundreds of millions of dollars in potential damages.

Allan is regularly called on to advise boards of directors and senior leadership on highly sensitive matters such as executive transitions, internal investigations and strategic workforce planning. He also has particular expertise in the financial services industry, where he has litigated and arbitrated cases, including at FINRA and its predecessors, for more than 20 years.
A prolific author and speaker, Allan was the Editor of the New York State Bar Association’s Labor and Employment Law Journal from 2012 to 2017. He has served as an author, editor and contributor to a number of leading treatises in the field of employment law, including ADR in Employment Law (ABA/Bloomberg BNA, Senior Editor), Employment Discrimination Law (ABA/Bloomberg BNA, Final Proof Editor), Cutting Edge Advances in Resolving Workplace Disputes (Cornell University/CPR, Editor), The Employment Law Review (Law Business Research, U.S. Chapter Author), and The Complete Compliance and Ethics Manual (SCCE, Chapter Author).

Allan is a member of the NYSBA’s House of Delegates, sits on the Executive Committee of the NYSBA’s Labor and Employment Law Section, and is a Fellow of the College of Labor and Employment Lawyers. He has been recognized as a leading practitioner by Chambers since 2011.