On March 13, 2019, we issued a Legal Alert summarizing the U.S. Department of Labor’s proposed new overtime rule that was announced on March 7, 2019.

On September 24, 2019, after considering approximately 200,000 public comments regarding the proposed rule, the Department announced its final overtime exemption rule. The final rule changes the requirements for exemptions to the Fair Labor Standards Act that have been in place for fifteen years. The Department estimates that the final rule will extend overtime pay to an additional 1.3 million workers.

In brief, the Department’s final rule:

• Increases the minimum salary threshold necessary for employees to qualify for the executive, administrative, and professional exemptions (the “standard salary level”) from the currently enforced $455 per week ($23,600 annually) to $684 per week ($35,568 annually).

• Increases the total annual compensation requirement for “highly compensated employees” from the currently-enforced level of $100,000 to $107,432 per year.

• Expresses the Department’s intent to review and update overtime regulations more regularly, but does not require the Department to propose updates on any set schedule.

• Allows employers to use nondiscretionary bonuses and commissions, or other incentive payments, to satisfy up to ten percent of the standard salary level.

• Increases, in proportion to the increase in the standard salary level, the special salary level for workers in the motion picture industry.

• Sets special salary levels for workers in the in U.S. territories below the standard salary level.

• Does not include any changes to the job duties test for any of the exemptions.

Although the Department has touted the final rule as a “reasonable compromise” that will provide employees with greater economic protections but not overly burden employers, worker advocates are expected to mount a legal challenge. It is anticipated that workers rights’ organizations will file Administrative Procedure Act claims that seek to invalidate the final rule because they believe that the economic protections afforded to employees are insufficient or that the procedures used in formulating the final rule were flawed.

The final rule takes effect on January 1, 2020. Therefore, employers have just a few months to adjust the compensation levels of their exempt employees to conform to the final rule if that is how they intend to respond to these changes. Alternatively, employers could convert those employees to hourly nonexempt employees and comply with the additional timekeeping and overtime requirements to which nonexempt employees are subject.