On September 24, the U.S. Department of Labor released its final rule changing the minimum salary requirements for the Fair Labor Standards Act’s “white-collar” overtime exemption regulations. As you may recall, the DOL issued a proposed rule in March 2019 that included increases to the minimum salary requirements and invited public comments. This process came after the DOL’s ultimately unsuccessful attempt to more than double the same minimum salary requirements near the end of the Obama administration.
The key provisions of the DOL’s 2019 final rule include:
- Raising the exemptions’ minimum salary requirement from $455 per week ($23,660 annually) to $684 per week ($35,568 annually);
- Raising the total annual compensation requirement for the FLSA’s highly compensated employee exemption from $100,000 to $107,432; and
- Allowing employers to use non-discretionary bonuses and incentive payments (including commissions) that are paid annually or more frequently to satisfy up to 10% of the minimum salary requirement.
Like the 2016 final rule, the 2019 final rule contains no changes to the white-collar exemptions’ duties tests or any other overtime exemptions (other than changes to special salary levels for workers in U.S. territories and the motion picture industry).
The DOL’s final rule differs somewhat from its March 2019 proposed rule. The minimum salary requirement increase in the final rule is $5 per week higher than that contained in the March 2019 proposed rule. Also, the new total annual compensation requirement for the highly compensated employee exemption of $107,431 is almost $40,000 less than the proposed rule. Finally, the DOL dropped the proposed provision that provided for review of the minimum salary thresholds every four years. With the final rule, any changes will need to be initiated by the DOL and follow the standard rulemaking process.
The DOL estimates that the changes in the 2019 final rule will make approximately 1.3 million currently exempt workers now eligible for overtime compensation. By comparison, the DOL previously estimated that its 2016 final rule would make 4.2 million exempt workers eligible for overtime pay. The 2019 final rule clearly is a more modest update to the existing requirements for the white-collar exemptions, which have not be revised since 2004.
The new minimum salary requirements take effect January 1, 2020. Litigation challenging the new final rule is likely, but employers cannot assume that this final rule will be blocked from taking effect like the 2016 final rule was. Thus, employers have a small window of time to take the necessary steps to ensure compliance before the calendar turns to 2020. These steps should include:
- Identifying employees who currently are classified as exempt under the FLSA white-collar exemptions and earn a weekly salary of less than $684 (taking into account the new ability to credit non-discretionary bonuses and incentive compensation for up to 10% of the minimum salary requirement); and
- For those employees, considering whether to (1) increase their salaries and/or bonuses/incentive compensation by January 1 to meet the new minimum salary requirement or (2) convert them to non-exempt status for FLSA overtime pay and minimum wage purposes.
Unfortunately, this is not the only imminent challenge facing Pennsylvania employers in the area of overtime exemption classifications. As we previously noted, the Pennsylvania Department of Labor and Industry in 2018 proposed big changes to the regulations on the minimum salary and duties requirements of the white-collar overtime exemptions under the Pennsylvania Minimum Wage Act. These proposed changes were far more significant and impactful than the changes contained in the DOL’s 2019 final rule. We anticipate that L&I may take action and issue final regulations sometime this fall or winter.
If that happens, Pennsylvania employers will need to work (and work quickly) to ensure compliance with changes to both the FLSA and Pennsylvania Minimum Wage Act’s white-collar overtime exemption requirements. In the meantime, employers should begin the process of ensuring compliance with the DOL’s final rule before the New Year.