U.S. Department of Labor Issues Final Overtime Rule Updates

More information about the final rule

The U.S. Department of Labor has issued a rule update which will make an estimated 1.3 million American workers eligible for overtime pay under the Fair Labor Standards Act (FLSA).

The final rule updates the earnings thresholds necessary to exempt executive, administrative, or professional employees from the FLSA’s minimum wage and overtime pay requirements, and allows employers to count a portion of certain bonuses (and commissions) towards meeting the salary level. The current thresholds have been in place since 2004, following federal court actions in 2016 which blocked rules that would have doubled the threshold. In this final rule, the Department is:

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

The final rule will be effective on Jan. 1, 2020.

Pennsylvania employers are currently unable to utilize the “highly compensated employee” exemption, as well as others, based on a quirk in state law. State Senator Lisa Baker is attempting to remedy this issue through S.B. 762. No change is proposed to the so-called duties tests, which define Executive, Administrative and Professional, and the rule does not require automatic salary threshold increases, as had been previously proposed.

The Department estimates that 1.2 million additional workers will be entitled to overtime pay as a result of the increase to the standard salary level. The Department also estimates that an additional 101,800 workers will be entitled to overtime pay as a result of the increase to the HCE compensation level.