New Overtime Regulations Increasing Salary Threshold Become Final

John Christopher, Manley Burke LPA, john.christopher@fraternallaw.com

On September 24, 2019, the proposed Department of Labor rules modifying overtime pay became final. The new rules will be effective January 1, 2020.

Among other items, the new rule updates the salary and compensation levels needed for workers to be exempt. The standard salary level in the new rule is set at $684 per week ($35,568 for a full-year worker). This is an increase of $229 per week over the existing rule adopted in 2004. According to the Department of Labor, the salary amount accounts for wage growth since the 2004 rulemaking by using the most current data available at the time the Department drafted the final rule.

The new rule allows employers to use nondiscretionary bonuses and incentive payments to satisfy up to 10 percent of the standard salary level. The Department of Labor states that the new rule is permitting the inclusion of bonus and incentive payments in recognition of evolving pay practices. For employers to credit nondiscretionary bonuses and incentive payments toward a portion of the standard salary level test, they must make such payments on an annual or more frequent basis.

In the event an employee does not earn enough in nondiscretionary bonus or incentive payments to retain exempt status for a given year, the new rule permits the employer to make a “catch-up” payment within one pay period of the end of the year. The “catch up” payment may be up to 10 percent of the total standard salary level for the preceding year. The catch-up payment will only count toward the prior year’s salary amount and not toward the salary amount in the year in which it is paid.

The Department further states that experience has shown that fixed earning thresholds become substantially less effective over time and that lengthy delays between updates necessitate disruptively large increases when overdue updates finally occur. To avoid these issues, the Department of Labor intends to update the earnings thresholds “more regularly” in the future through the notice-and-comment rulemaking mechanism.