Take Two - Final DOL Rule Issued Setting FLSA Salary Exemption at $35,568 Per Year
On September 24, 2019, the U.S. Department of Labor issued its final version of the much anticipated overtime exemption rule, raising the minimum salary threshold required to qualify for the Fair Labor Standards Act’s (FLSA) “white collar” exemptions to $35,568 per year, or $684 per week.
The FLSA is the federal law that governs minimum wage and overtime pay for all hours worked. Since 2004, "white collar" exemptions could apply where workers have met certain duties tests and are paid on a salary basis of at least $455 per week – or $23,660 per year. These workers are considered exempt under the FLSA's executive, administrative, professional or outside sales exemptions.
In addition to setting the minimum salary level to meet the exemption, the new DOL rule raised the salary level for highly compensated workers from $100,000 to $107,432. That highly compensated employee exemption applies to highly paid employees who perform some managerial duties who are subject to a less stringent regulatory test.
The Final Rule does not change the duties tests under the "white collar" or "highly compensated employee" exemptions. The new proposed rule also rejected a proposal that salary levels to satisfy the exemption automatically increase every three years. Under the proposed rule, DOL retains the flexibility to consider whether or when salary levels should be adjusted in the future.
Now that the “other shoe” has dropped on this issue, it is important for all employers who have employees whom they believe are exempt under Section 13(a)(1) of the FLSA to make sure that their current salary meets the new threshold level of $35,568 per year. If the employee claimed to be exempt receives less
than that annual salary, he or she will not be entitled to the exemption as of January 1, 2020. As a consequence, all employers should review the salary levels paid to all employees they believe are exempt to determine whether those salaries need to be adjusted to meet the new minimum salary requirement. If any changes are needed, they should be made prior to January 1, 2020.
After evaluating and selecting new compensation models for affected employees, employers must plan and prepare to:
- Communicate and implement the new compensation model to affected employees;
- Train supervisors to manage non-exempt employees and to monitor and discourage after hours work;
- Train non-exempt employees to track and report time; and
- Manage overtime.
While there is a chance that this final DOL regulation may be challenged in court, and its effective date possibly stayed, it is probably more prudent to assume that the final rule will be upheld, requiring all employers to be in full compliance as of January 1, 2020.
The DOL has also issued guidance available here
to assist employers. For more information about managing the change in the overtime law please contact Mary Elizabeth "Betsy" Davis, Kevin C. McCormick or another member of the Whiteford Taylor Preston labor and employment team.