As many businesses will recall, in 2016 the Department of Labor (DOL) issued a final rule that more than doubled the minimum salary that must be paid to certain employees for them to remain exempt from minimum wage and overtime pay requirements, but a federal court enjoined and declared that rule invalid. Earlier today, the DOL announced its new final overtime rule and formally rescinded its 2016 rule. The new rule, which will go into effect on January 1, 2020, increases the minimum salary that must be paid for certain employees to remain exempt, but the increase is not nearly as high as the one proposed in 2016.
Revised Regulations
As a result of the DOL’s new rule:
- The minimum salary (or, if applicable, fee basis) required for most executive, administrative and professional employees to remain exempt on January 1 will increase from $455 to $684 per week, or from $23,660 to $35,568 per year. (The rule proposed in 2016 would have increased the minimum salary to $913 per week, or $47,476 per year.)
- The minimum total annual compensation required for the highly compensated employees’ exemption will increase from $100,000 to $107,432. (The 2016 proposal would have increased the minimum total annual compensation required for the highly compensated employees’ exemption to $134,004.)
- Employers will be able to satisfy up to 10 percent of the minimum salary amount for executive, administrative and professional employees (but not highly compensated employees) through the payment of nondiscretionary bonuses, incentives and commissions provided those payments are made at least annually.
- Highly compensated employees must receive at least the new standard salary amount of $684 per week without regard for the payment of nondiscretionary bonuses, incentives and commissions, but the remainder of the total annual compensation paid to such employees may include nondiscretionary bonuses, incentives and commissions. In other words, because most of the compensation for highly compensated employees can consist of nondiscretionary bonuses, incentives and commissions, those types of payments cannot be used to satisfy the standard salary amount paid to such employees.
As a reminder, for employees to be exempt from the right to receive minimum wage and overtime pay, employers must ensure that employees meet certain duties requirements in addition to meeting the salary test. The DOL’s revised regulations increase the salary test, but do not change the duties tests for the exemptions.
Preparing for the New Rule
Employers should consider discussing these changes with their counsel; that will help ensure that employers understand and abide by the new legal requirements, and allow employers to have privileged and frank discussions with counsel about their options. Employers’ options may include:
- Increasing employees’ salaries so that employees remain exempt;
- Reclassifying employees as non-exempt;
- Limiting the number of hours non-exempt employees work; and/or
- Hiring additional employees to minimize overtime expenses.
In choosing among these options, employers should consider what impact the changes will have on their business and workforce. For example, companies should look at their employee benefits plans to see if they will be affected by any changes, as well as review and update personnel documents, agreements and policies to reflect any changes. Further, employers may need to train employees who will be reclassified as non-exempt on how to appropriately track their time. Finally, many employers will need to budget for increased pay-related expenses.
Conclusion
It is imperative that employers understand and comply with the changes required by the DOL’s new overtime rule. As many companies know, Fair Labor Standards Act lawsuits are common, and the price of a mistake is high as employees may recover not only unpaid minimum wage and overtime compensation, but also an equal additional amount as liquidated damages plus attorneys’ fees and costs.
