On Tuesday, the U.S. Department of Labor issued its final rule concerning overtime exemptions. The rule increases the salary threshold for employees exempt under the executive, administrative, and professional exemptions (the “white collar exemptions”) from $455 per week (or $23,660 annually) to $684 per week (or $35,568 annually). Additional changes include:

  • Increasing the total annual compensation threshold for highly compensated employees (“HCEs”) from $100,000 per year to $107,432 per year;
  • Permitting employers to use nondiscretionary bonuses and incentive payments to satisfy up to 10% of the increase salary threshold; and
  • Committing to updating the salary threshold more regularly.

The new rule is set to take effect on January 1, 2020 and increase the number of overtime-eligible employees by 1.3 million. No changes to the duties test have been made.

This isn’t the first time in recent years that we’ve had a final rule issued increasing the salary threshold for the white-collar exemptions. In 2016, the DOL, under President Obama’s administration, issued a final rule increasing the salary threshold to $913 per week (or $47,476 annually). The 2016 rule also increased the minimum salary for HCEs (to $134,004), allowed employers to use nondiscretionary bonuses and incentive pay to satisfy up to 10% of the salary threshold, and provided for automatic annual updates to keep the minimum salary level adjusted to the 40th percentile of full-time salaried workers in the lowest-wage Census region. Business groups and several states filed a lawsuit seeking to block the 2016 rules, arguing that the DOL exceeded its authority in adopting the rules. A federal district court in Texas agreed and blocked the rules from taking effect.

The new minimum salary threshold falls between the currently salary threshold and the rule proposed under the Obama administration. While the 2016 rule was criticized by many business and employer groups, the new final rule is drawing fire from advocates for workers, who wish to force the administration to adopt something closer to the blocked 2016 rules. Legal challenges to the new rules are highly likely to follow.

We will keep you updated on any new developments as the effective date of the new rule approaches.