Today, the Department of Labor (“DOL”) announced its final rule to increase overtime pay for salaried employees. The new rule lifts the annual salary threshold from $455 per week ($23,600 annually) to $684 per week ($35,568 annually). The rule also raises the annual compensation requirement for highly compensated employees (“HCE”) from $100,000 per year to $107,432 per year. This is a significant change from the proposed rule, which set the annual HCE compensation at $147,414. Although the rule changes the “compensation test” for overtime exemption, the “salaried test” and the “duties test” for the executive, administrative, professional, and HCE exemptions remain the same.

Additionally, the rule allows employers to use nondiscretionary bonuses and incentive payments to satisfy up to 10% of the salary threshold. The payments must be made on at least an annual basis in order for employers to credit such payments toward the salary threshold.

The final rule will take effect January 1, 2020, and the DOL estimates that the updated salary thresholds will make 1.3 million more American workers eligible for overtime pay. Accordingly, employers must begin preparing now to comply with the new regulations when they become effective in 2020. Although each workplace is different, consider implementing the following suggestions in the upcoming weeks:

  • Identify exempt positions that fall below the new minimum salary threshold. Consider which positions will receive a pay raise to maintain the exemption and which positions will be reclassified as non-exempt.
  • Consider whether your bonus and incentive pay arrangements qualify for meeting the salary threshold, or whether they could be tweaked to qualify.
  • Train reclassified non-exempt employees in accurate timekeeping and address expectations regarding responding to emails, text messages, and phone calls after work hours.
  • Review and update your overtime and timekeeping policies.
  • Communicate all policy changes to your employees.