DOL sets salary level at $35,568 for final overtime rule

Over 1 million workers affected

Posted September 30, 2019

On September 24, 2019, the U.S. Department of Labor (DOL) announced a final rule to update the earnings thresholds necessary for employers to exempt executive, administrative and professional employees from the Fair Labor Standards Act’s (FLSA) minimum wage and overtime pay requirements. The final rule did not, however, make any changes to the standard or HCE duties test. Employers can now start making plans to incorporate the changes, as the final rule becomes effective January 1, 2020.

Basic provisions of the final rule include the following:

  • Raising the “standard salary level” from the currently enforced level of $455 per week to $684 per week — equivalent to $35,568 per year for a full-year worker;
  • Raising the total annual compensation requirement for “highly compensated employees” (HCE) from the currently enforced level of $100,000 per year to $107,432 per year;
  • Allowing employers to use nondiscretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10% of the standard salary level, in recognition of evolving pay practices; and
  • Revising the special salary levels for workers in U.S. territories and the motion picture industry.

Salary level: According to the DOL, the salary amount accounts for wage growth since the 2004 rulemaking by using the most current data available at the time the DOL drafted the final rule, and applying to current data the same method and long-standing calculations used to set that level in 2004 — i.e., by looking at the 20th percentile of earnings of full-time salaried workers in the lowest-wage census region (then and now the South), and/or in the retail sector nationwide.

Highly compensated employee: The HCE compensation level equals the earnings of the 80th percentile of full-time salaried workers nationally. To be exempt as an HCE, an employee must also receive at least the new standard salary amount of $684 per week on a salary or fee basis (without regard to the payment of nondiscretionary bonuses and incentive payments).

Bonuses and incentives: For employers to credit nondiscretionary bonuses and incentive payments toward a portion of the standard salary level test, they must make such payments on an annual or more frequent basis. If an employee does not earn enough in nondiscretionary bonus or incentive payments in a given year (52-week period) to retain his or her exempt status, the employer may make a “catch-up” payment within one pay period of the end of the 52-week period. This payment may be up to 10 percent of the total standard salary level for the preceding 52-week period. Any such catch-up payment will count only toward the prior year’s salary amount and not toward the salary amount in the year in which it is paid.

The DOL intends to update the Part 541 regulations more regularly, but declined to include plans to provide updates to the Part 541 regulations every four years.

This article was written by Darlene M. Clabault, SHRM-CP, PHR, CLMS, of J. J. Keller & Associates, Inc.

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