The United States Department of Labor (“DOL”) recently published its final rule governing overtime obligations under the federal Fair Labor Standards Act (“FLSA”). An employee covered by the FLSA must receive overtime pay for all hours worked over 40 during a workweek, unless the employee is exempt. In general, to be exempt from overtime, an employee must satisfy a salary basis test, a duties test, and a salary threshold test. The final rule increases only the salary threshold for exemption. 

The key provisions of the final rule include:

• Increasing the current salary threshold from $455 to $684 per week ($35,568 per year for a full-year employee);

• Increasing the total annual compensation for an exempt “highly compensated” employee from $100,000 per year to $107,432 per year;

• Allowing employers to count nondiscretionary bonuses and incentive payments – including commissions – paid at last annually to be counted toward up to 10% of an employee’s salary; and

• Revising salary thresholds for employees in U.S. territories and the motion picture industry.

The final rule takes effect on January 1, 2020. Employers should audit their workforces well in advance of that date to determine whether compensation or job duties adjustments should be made. 

The DOL acknowledged that “fixed earnings thresholds become less effective over time” and that “lengthy delays between updates necessitate disruptively large increases.” Employers should be prepared for updated salary thresholds from the DOL, potentially every four years.