On September 27, 2019, the Department of Labor (“DOL”) issued revised regulations under the Fair Labor Standards Act (“FLSA”) that increase the minimum salary threshold to qualify for exemption from overtime. The prior rule has been in place since 2004. You may recall that in May 2016, the Obama administration sought to increase the threshold to $47,476 annually ($913 per week), but an injunction was granted by the United States District Court for the Eastern District of Texas prohibiting implementation and enforcement of the proposed rule on the grounds that the DOL had exceeded its rulemaking authority. State of Nevada, et al v. United States Department of Labor, et al., Case No. 16-CV-0731-ALM, Docket No. 99 (E.D. Tex. August 31, 2017).
The new regulations increase the minimum salary threshold to qualify for exemption from the current level of $455 per week ($23,660 annually) to $684 per week ($35,568 annually). The new regulation also raises the threshold for “highly compensated employees” from $100,000 annually to $107,432 per year. It is anticipated that the changes will extend overtime coverage to approximately one million United States workers.
Under the new regulations, the salary threshold will not be static but will instead be subject to periodic increases every four years following a public notice and comment period on the proposed increase. Also new to this regulation permits employers to include certain nondiscretionary bonuses (such as those tied to productivity and profitability) and incentive payments (such as commissions) that are paid annually or more frequently to account for up to 10 percent of an employee’s salary for purposes of determining whether the threshold is met.
The new regulation did not change the prior requirement that simply paying a higher salary is not enough for an employee to qualify for an exemption. The “duties test” continues to apply, meaning that employees must still perform as their “primary duty,” duties identified as exempt under the executive, administrative or professional exemptions. The regulation also did not change the mechanics of the “salary basis test,” such that in each pay period, the employee must receive at least the minimum salary, which cannot be subject to reduction because of variations in the quality or quantity of work performed.
Employers are reminded that a change in federal laws and regulations do not change state minimum wage and overtime laws and regulations. Employees are entitled to the benefit of the laws and regulations that give the employee the greater benefit. For example, in Pennsylvania, there is no exemption for highly-compensated employees.
The new regulations go into effect on January 1, 2020.
Business owners and others responsible for human resource management should consider reviewing these issues with counsel as soon as possible to be ready for January.