U.S. DOL Increases Salary Requirements for Exemption from Overtime

October 16, 2019

As noted in a prior post, employers should be aware that in late September, the DOL published a Final Rule that expands overtime coverage to over a million workers in America, or alternatively will result in those workers getting a pay raise. As expected, the Final Rule increases the salary that employers must pay certain workers in order for them to be exempt from receiving overtime.

First, the Final Rule raises the salary level for employees exempt under the duties-based exemption to overtime (e.g. the administrative, executive, professional, and outside sales exemptions). Employees exempt from overtime on this basis must still be paid on a salary basis and must still meet the job duties test. But, going forward, they must earn at least $35,568 per year, an increase from $23,600, in order to qualify for the professional, administrative, executive, and outside sales exemptions to the overtime rule. This means that if an employee is salaried under one of these exemptions, but earns less than $35,568 per year, the employee will need to paid overtime at the rate of at least 1.5 times the regular rate of pay for all hours worked over 40, or have his or her salary increased to the new minimum salary of $35,568 to still qualify for the overtime exemption.

In addition, the DOL’s Final Rule increased the annual compensation level for “highly compensated employees,” individuals who may not meet the “duties” test to qualify for an exemption, but make so much money that the DOL allows them to be salaried anyway, from $100,000 per year to $107,432 per year.

Finally, employers will be allowed to use nondiscretionary bonuses, incentive payments, and commissions to satisfy up to ten percent of the salary test to determine whether employees must be paid hourly or based on salary.

What does this new rule mean for employers?

Employers will need to assess if they have any salaried workers exempted based on their duties who make less than $35,568/year. For employees exempt not pursuant to their duties, but simply because they are highly compensated, employers will have to assess if those employees make less than $107,432 per year. In either case, employers are going to have to bump up those employees’ salaries to meet the new yearly salary applicable to their exemption, or change the employee to hourly pay as of January 1, 2020.