Early yesterday, the U.S. Department of Labor rolled out the final version of its overtime exemption rule, raising the annual salary required for one to qualify for the “white collar” exemptions (e.g. administrative, executive, professional) set forth in the Fair Labor Standard Act (FLSA). The new rule, which goes into effect on January 1, 2020, raises the salary threshold for the white collar exemption from $23,660 ($455 per work week) to $35,568 per year ($684 per work week).

The new overtime rule is expected to impact approximately 1.3 million American workers.

Besides the $35,568 annual salary threshold, the new rule raises the so-called highly compensated worker threshold from $100,000 to $107,432. The highly compensated employee exemption covers well-paid workers who perform some managerial duties. Employees designated as highly compensated face less stringent requirements for being exempt from overtime pay.

In addition, for the first time, employers will be allowed 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.

The DOL did not include a provision to automatically increase the “white collar” salary threshold every three years, as originally proposed.

The possible revision to the overtime rule has been at the forefront of the most closely watched items since the start of President Trump’s term due to the long-range effects on numerous businesses and millions of workers.

Next steps for employers

Employers should take proactive steps to address employees who are currently classified as exempt but make less than $35,568 in annual salary. The employer can either increase the employee’s pay to meet the salary level test or re-classify the employee as non-exempt, meaning the employee will now get paid on an hourly basis and will be eligible to receive overtime pay if the employee works more than 40 hours in a work week. Employers wanting to use the highly compensated test will need to ensure those “highly compensated” employees earn at least $107,432 annually.

In order to meet the compliance deadline, employers should promptly consult with experienced legal counsel with expertise in helping clients navigate through the FLSA (and state pay laws) to ensure compliance with the employer’s pay obligations.