DOL Issues New Overtime Rule

As we reported last week, the U.S. Department of Labor (DOL) announced that it will raise the minimum threshold for mandatory overtime pay under the Fair Labor Standards Act (FLSA) to $35,568 from its current level of $23,660. The new rate will take effect January 1, 2020, and is expected to cover an additional 1.3 million workers who are ineligible under the current overtime rule.

To be exempt from overtime under the FLSA, employees must be paid a salary of at least the threshold amount, as well as meet certain duties tests. If either condition is not met, employees must be paid for hours worked in excess of 40 in a workweek at one and one-half times their regular hourly rate.

In addition to raising the standard salary level for full-time employees, the DOL’s final rule also will:

  • Allow employers to use non-discretionary bonuses and incentive payments, including commissions, to count for up to 10 percent of the standard salary level so long as those bonuses are paid annually;
  • Raise the annual compensation requirement for “highly compensated employees” from $100,000 per year to $107,432; and
  • Revise the special salary levels for workers in U.S. territories as well as in the motion picture industry.

While the long-awaited rule represents an increase of nearly $12,000, it falls short of the Obama administration’s 2016 overtime rule, which would have raised the threshold to $47,476 per year. A federal district court in Texas invalidated the 2016 rule before it could take effect, finding that the DOL had exceeded its authority by setting the salary level too high. Business groups had opposed that threshold and claimed it would lead to increased litigation.

Several states, including California and New York, have salary thresholds for overtime eligibility that already exceed the new federal standard.

This increased minimum federal threshold for overtime pay will represent the first change since 2004 once it takes effect.