U.S. Department of Labor Issues New Final Rule on Overtime

Today, on September 24, 2019, the United States Department of Labor (“DOL”) issued its new overtime rule that will raise the salary basis threshold for “exempt” employees under the Fair Labor Standards Act (“FLSA”) from $23,660 to $35,568 per year (or from $455 to $684 per week). The rule also will allow employers to count nondiscretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10% of the standard salary level. Additionally, under the new rule, the total annual compensation requirement for highly compensated employees is from $100,000 to $107,432.

The increased salary threshold will likely increase personnel costs for employers, including school districts, by limiting the scope of employees who could be exempt from overtime under the FLSA.  Under the FLSA, an employee may be exempt from the entitlement to overtime depending on (1) how much the employee is paid, (2) the manner in which they are paid, and (3) what sort of job duties they perform.  The new rule only changes the first test, the salary threshold, so merely increasing an employee’s pay to exceed the threshold will not necessarily mean that they are exempt if the employee’s duties are not exempt.

Nevertheless, the new rule will not likely impact personnel costs as much for employers with collective bargaining agreements which already grant bargaining unit employees overtime rights that are more generous than required by federal law.

We previously reported on the potential new rule in March of 2019 when the DOL first issued its proposed rule.  The proposal changed during the rulemaking process, and the final rule’s salary threshold is slightly higher than initially proposed (increasing to $684 per week instead of $679 per week).  The final rule also did not increase the threshold for highly compensated employees as much as originally proposed.

The new rule is effective January 1, 2020.

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