With Halloween just around the corner, many of us are preparing costumes, enjoying the fall chill in the air, and making plans for trick-or-treating.  But employers should be prepared for one “trick” announced by the federal Department of Labor a few weeks ago: on September 24, 2019, the federal Department of Labor announced a new rule under the Fair Labor Standards Act that it claims will make 1.3 million American workers “newly eligible for overtime pay.”

The DOL has been working to update this rule for quite some time. In fact, a prior attempt in May 2016 would have increased the minimum salaries required for executive, administrative and professional employees to remain exempt from overtime pay under the FLSA. But in August 2017, a federal court entered a final judgment against implementing that rule.  Not to be deterred, as we covered last year, in March 2019 the DOL tried again, releasing a version of another new rule for notice and comment.

After receiving more than 116,000 comments, the rule was finalized in late September and will go into effect January 1, 2020. The new rule increases the set thresholds for salaries applicable to employees who are exempt from the FLSA’s minimum wage and overtime pay requirements under the executive, administrative or professional employee exemptions. The new rule will also update the regulations to allow employers to count a portion of certain bonuses/commissions towards meeting the salary level. Importantly, though, the final rule does not change any of the existing job duties tests.

You can find the full text of the new rule here.  But in a nutshell: what has changed? The DOL is:

  • raising the “standard salary level” from the currently enforced level of $455 per week to $684 per week (equivalent to $35,568 per year for a full-year worker);
  • raising the total annual compensation requirement for “highly compensated employees” from the currently enforced level of $100,000 per year to $107,432 per year;
  • allowing employers to use nondiscretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10% of the standard salary level, in recognition of evolving pay practices; and
  • revising the special salary levels for workers in U.S. territories and the motion picture industry.

Finally, the DOL has clarified its intent to update the earnings thresholds more regularly in the future through notice-and-comment rulemaking – so more changes, more often, appear to be on the horizon.

Classification of employees is always a great topic on which to enlist the advice of your favorite Troutman Sanders labor and employment attorney, but the new rule provides a timely reminder to confirm that your classifications (and exemptions) are in good shape to avoid more “tricks” as you head into the new year.