On September 24, 2019, the U.S. Department of Labor (DOL) published a highly anticipated final rule that updates the salary thresholds necessary to qualify for overtime exemptions – often referred to as the “salary level test” – under the Fair Labor Standards Act (the 2019 Final Rule).[1] This rule will replace the prior final rule published on May 23, 2016 (the 2016 Final Rule) under the Obama administration, which was enjoined in 2016 and remains the subject of an abated appeal pending before the Fifth Circuit Court of Appeals.

The DOL published the Notice of Proposed Rulemaking (NPRM) underlying the new rule on March 22, 2019. In response, the DOL received more than 116,000 comments. Based on those comments, the DOL made several changes that are reflected in the 2019 Final Rule.

The new rule, which will take effect on January 1, 2020, will affect the salary level test as follows:

  • The rule raises the standard salary level from $455 per week ($23,660 per year) to $684 per week ($35,568 per year).
  • The rule allows up to 10 percent of the salary level to be satisfied by payment of nondiscretionary bonuses, incentives, and commissions that are paid annually or more frequently. The rule also provides for an end-of-year catch-up payment if such bonuses fall short of the threshold.
  • The rule modestly updates the highly compensated employee total annual compensation level to $107,432 from the current level of $100,000. The DOL abandoned a much higher proposed threshold of $147,414 in response to comments following publication of the NPRM.
  • In a change from the 2016 Final Rule, the rule does not contain a mechanism to automatically adjust the salary-level standards. As a result, future increases will require further rulemaking.
  • The new rule creates an alternative salary level schedule for U.S. territories and creates an exemption from the salary basis test for the motion picture industry under certain circumstances.

We will continue to monitor developments and provide updates. In the meantime, if you have any questions or concerns, please do not hesitate to reach out to the authors of this post or any member of Reed Smith’s Labor & Employment team.

[1] Department of Labor, https://www.dol.gov/whd/overtime2019/overtime_FR.pdf.