The United States Department of Labor (DOL) announced its final overtime rule today, setting the minimum salary threshold for overtime eligibility at $35,568. The threshold will make 1.3 million American workers eligible for overtime pay under the Fair Labor Standards Act (FLSA), according to the DOL.
The threshold is slightly higher than the initial draft of the rule proposed in March of $35,308. It also will allow employers to count non-discretionary bonuses, incentives and commissions for up to 10% of an employee’s salary level, as long as those bonuses are paid annually. The FLSA’s exemption threshold for highly compensated employees will be set at $107,432, which is significantly lower than DOL’s initial draft that set it at $147,414 per year, but higher than the previous threshold of $100,000.
In its Fair Labor Standards Act comment letter submitted to the DOL's Wage & Hour Division in May, WorldatWork agreed with the proposed overtime rule threshold but advocated for changes to the highly compensated employee threshold.
“For the first time in over 15 years, America’s workers will have an update to overtime regulations that will put overtime pay into the pockets of more than a million working Americans,” Acting U.S. Secretary of Labor Patrick Pizzella said in the DOL’s release. “This rule brings a common-sense approach that offers consistency and certainty for employers as well as clarity and prosperity for American workers.”
Some have argued the minimum salary level, which breaks down to $684 a week, is too low. Tammy McCutchen, a principal at Littler Mendelson P.C., asserted that the DOL got it right.
“The new salary level will work everywhere in the country without harming economies in the South and Midwest, and adding new unjustified costs to small businesses, non-profits, local governments, colleges and universities, and the restaurant and retail industries, which are already struggling to meet increased minimum wage and paid sick leave requirements,” McCutchen said. “It may seem low for employees in California, New York and other states with high costs of living. But, like the minimum wage, those states can and have adopted a higher minimum salary for exemption.”
The DOL said the agency has not set a time frame for any automatic updates to the overtime eligibility threshold beyond what is included in the final rule. The DOL also said the final rule released on Tuesday will not make changes to the FLSA’s “duties test.”
The final rule will be effective on Jan. 1, 2020.
The DOL’s finalized overtime rule aligned closely with WorldatWork’s views expressed in its May comment letter. A few examples of alignment:
- The final rule formally rescinded the 2016 overtime rule.
- The final rule utilized methodology consistent with the 2004 methodology.
- The final rule does not include geographic salary level threshold differences.
- The final rule allows employers to count nondiscretionary bonuses, incentives and commissions up to 10% of the standard salary level, as long as those amounts are at least paid annually.
- The final rule set the HCE total annual compensation amount at an amount equal to annualized weekly earnings of the 80th percentile of full-time salaried workers nationally, instead of the 90th percentile used in the proposed rule. – The DOL cited WorldatWork’s influence on this particular change, noting “WorldatWork asserted that this approach would “result in a far more workable standard, given the fluctuation in weekly earnings in different parts of the country and in different industries” and would still identify  those individuals who should be eligible for a more relaxed duties test.”
WorldatWork is not in alignment with the DOL’s 99-day implementation period. Per its comment letter, 81% of the WorldatWork’s survey respondents advised that they believe 180 days or more are necessary to properly implement the proposed changes, as well as changes that may occur in the future in connection with these periodic updates.
Stay tuned to WorldatWork for more insight on this topic.
About the Author
Brett Christie is a staff writer at WorldatWork.