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Employers: Under Final DOL Rule, As Of January 1, 2020, Most Employees Earning Less Than $35,568 Annually Will No Longer Be Exempt From Overtime

As most of you will recall, in 2016, under the Obama administration, the Department of Labor ("DOL") increased the salary level required for exemption under the Fair Labor Standards Act ("FLSA") from $23,660 to $47,476. However, the Obama DOL rule was invalidated by federal courts (because the salary level was so high as to supplant the duties analysis in the FLSA exemption criteria). The final DOL rule released yesterday, increases the salary amount required for exemption under most of the FLSA exemptions -- but by substantially less than the Obama rule provided.

Under the final DOL rule announced yesterday, the salary that employees must earn in order to qualify for most FLSA exemptions has jumped from $455 to $684, weekly, and from $23,660 to $35,568, annually. This salary level is based upon the 20th percentile earnings of full-time salaried workers in the lowest-wage region (the South) and the retail industry nation-wide.

The DOL estimates that under this rule approximately 1.2 million workers will now become eligible for overtime. Unlike the 2016 DOL rule, the rule does not provide for automatic adjustments. However, the DOL affirmed its intent to more regularly update the compensation threshold.

Additional significant points in new DOL rule:

  • Under the rule, employers will be able to use nondiscretionary bonuses and incentive payments, including commissions, paid at least annually, to satisfy up to 10 percent of the new standard salary level. If an employee does not earn enough in incentive payments to reach the salary threshold, the employer may make a catch up payment within one pay period from the end of the 52 week period;
  • The salary level required for the "highly compensated employee" exemption has also been raised, although less significantly, from $100,000 to $107,432 (this level equals 80% of full-time salaried workers nationally);
  • A higher salary threshold applies to the motion picture industry; and
  • Lower salary thresholds apply to U.S. Territories.

Remember: the salary test is only one component of the exemption analysis. Even if your employees meet this salary threshold for exemption, before classifying any employee as "exempt" be very careful to ensure that the job duties component of the applicable exemption is satisfied as well. I also suggest careful analysis before relying upon incentives to meet the salary threshold.

Questions? Contact attorney Jennifer Adams Murphy at 630.377.1554 or by email at [email protected]

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