Commentary

The DOL’s New Wage Standard

On Wednesday, the U.S. Department of Labor issued a final rule that significantly expands the overtime protections under the Fair Labor Standards Act.  The rule becomes effective on January 1, 2020.

Currently, the FLSA exempts from its minimum wage and overtime requirements executive, administrative, professional, outside sales, and computer employees.  To be exempt, employees must meet certain primary duties tests and be paid on a salary basis of at least $455 a week or $23,600 annually. Highly compensated employees currently must earn $100,000 annually.  The new rule increases the minimum salary an employee must receive before being considered overtime-exempt to $684 per week.  That is $35,568 per year.  Employers can satisfy up to 10% of that $35,568 salary through nondiscretionary bonuses, incentives, and commissions that are paid annually or more frequently.  The salary level for highly compensated employees is increased to $107,432.

According to the DOL, “the salary level test provides certainty for employers and employees, as well as efficiency for government enforcement agencies.”  By increasing the salary threshold from $455 to $684 per week, the DOL estimates that about 1.3 million currently exempt employees, and about 100,000 highly compensated employees, will no longer qualify for the exemptions.  They will become entitled to minimum wage and overtime under the FLSA, unless the salaries are increased to meet the new requirements.

You may recall that in 2016 the DOL sought to increase the salary threshold to $913 per week or $47,476 per year.  Shortly after the rule was published, 21 states sued the DOL contending the agency overstepped its authority.  A district court in Texas blocked the rule from taking effect.  The DOL’s new rule now officially rescinds the 2016 effort.

The DOL says “the revised salary level reduces the likelihood of workers being misclassified as exempt from overtime pay, providing an additional measure of the effectiveness of the salary level as a bright-line test delineating exempt and nonexempt workers.”  Worker advocates have already threatened litigation over the new rule.