Memo – 2019 FLSA Overtime Final Rule Changes: 5 Key Facts

The Department of Labor (DOL) issued changes that substantially increase the minimum salary requirement for certain exemptions under the Fair Labor Standards Act (FLSA). The final rule is scheduled to take effect on January 1, 2020.

The FLSA requires covered employers to pay “non-exempt” employees at least the minimum wage for each hour worked as well as overtime pay for all hours worked in excess of 40 in a workweek. While most employees are non-exempt, the FLSA includes exemptions for certain administrative, professional, executive, highly compensated, outside sales, and computer professional employees.

Currently, to be considered “exempt,” these employees must generally satisfy three tests:

1. Salary level test: Employers must pay employees at least the current minimum salary per week.

2. Salary basis test: With very limited exceptions, the employer must pay employees their full salary in any week they perform work, regardless of the quality or quantity of the work.

3. Duties test: The employee’s primary duties must meet certain criteria. There is also an exemption for “highly compensated” employees who are paid a total annual compensation of at least $100,000. These employees are exempt from the FLSA’s overtime requirements if they customarily and regularly perform at least one of the exempt duties or responsibilities of an executive, administrative, or professional employee.

Key Fact #1: Salary Thresholds Increased

Under the new rule the salary threshold for the executive, administrative, and professional employee exemptions will be set at $684 per week (or $35,568 per year).

The salary threshold for highly compensated employees will also increase. The new rule raised the salary threshold for highly compensated employees to $107,432.

Key Fact #2: No Automatic Updates to Salary Requirements

Under the new rule, the DOL reaffirmed its intent to update salary thresholds more regularly in the future, but there is no set frequency for revisiting them and no mechanism for automatic updates.

Key Fact #3: No Changes to Duties Tests

The DOL did not make any changes to the duties test for the administrative, executive, professional, or highly compensated employee exemptions.

Key Fact #4: Non-discretionary compensation can help satisfy the standard salary level

For the first time, employers may use non-discretionary bonuses (generally defined as those announced or promised in advance), incentive payments, and commissions, to satisfy up to 10 percent of the minimum salary requirement for the administrative, professional, and executive exemptions.

Key Fact #5: New Rule Could Have Substantial Impacts

Some estimate that in the first year as many as 1.3 million workers would either need to: (1) be reclassified as non-exempt and paid overtime whenever they work more than 40 hours in a workweek; or (2) receive an increase in their salary to meet the new threshold requirement. New salary levels do not apply to employers in Puerto Rico, the Virgin Islands, Guam and the Commonwealth of the Northern Mariana Islands.

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