Locke Lord QuickStudy: Final Overtime Rules Issued

Late last month the Department of Labor finally released its regulations for calculating overtime eligibility under the Fair Labor Standards Act.The final rule becomes effective on January 1, 2020.

One key component of the new standards will elevate the threshold for white collar exemptions from the present “standard salary” of $455/week or $23,660 annually to $684/week or $35,568 annually.These increased amounts are approximately midway between the 2016 version adopted during the Obama administration and the current threshold.

The new threshold for highly compensated employees will be $107,432 annually.The current standard is $100,000.  The Obama administration rule would have set this threshold at $134,004 per year.

Like the 2016 version, employers may use non-discretionary bonuses, commissions, and other incentive payments (non-discretionary income compensation or “NIC”) to account for up to ten percent (10%) of the standard salary level. To qualify, NIC must be paid at least annually.

Unlike the 2016 version, the new rules do not address increasing salary thresholds periodically.

The Department of Labor estimates that 1.3 million workers will be impacted by the new rule. 

Employers should prepare now for the new rules by assessing whether they have employees earning less than $684/week and, if so, whether to increase their salaries to qualify as exempt from the new rule, convert them to hourly employees, or maintain their current salaries and cap overtime entitlements. They also should determine whether they pay NIC to affected employees and, if so, whether it counts toward the new salary threshold.