On September 24, 2019, the United States Department of Labor (“DOL”) released the long-awaited revised rule regarding overtime exemptions under the federal Fair Labor Standards Act (“FLSA”). The rule makes adjustments to the minimum salary thresholds for exempt and highly paid employees.

New Minimum Salary Thresholds

Effective January 1, 2020, the new rule increases the minimum annual salary threshold from approximately $23,600 to $35,500 for "exempt" employees (i.e. administrative, executive, and professional employees). In addition, the rule increases the minimum annual salary threshold for “highly compensated employees” from approximately $100,000 to $107,432. The rule also allows employers to use nondiscretionary bonuses, commissions, and other incentive payments paid at least annually to satisfy up to 10 percent of the minimum salary threshold.

The current minimum salary thresholds are more than 15 years old, and most of the comments the DOL received acknowledged the need for an update. There was however, significant disagreement as to what the new thresholds should be and how often they should be updated.

Previous Attempt to Update the Minimum Salary Threshold

In 2016 the DOL released a rule that would have raised the minimum salary threshold to approximately $47,500, and it further provided for automatic increases every three years. The rule provoked significant pushback, and it was ultimately enjoined from enforcement after a legal challenge in federal court. The new rule, by contrast, offers a more modest adjustment to the minimum salary threshold.

In releasing the new rule, the DOL formally rescinded the 2016 rule, and declined to include a set schedule for future updates. The DOL acknowledged the need for more frequent updates, but it concluded that a set schedule would deprive the DOL of needed flexibility to adapt to unanticipated circumstance.

Impact on New York State Employers

New York state has already established minimum salary thresholds for executive and administrative employees that exceed the new federal minimum. There are, however, many exempt employees that are not covered by the New York state thresholds. For example, New York state does not have a minimum salary threshold for professional employees. In addition, New York state’s minimum salary thresholds, for the most part, do not apply to public employers.

Looming Legal Challenges

Worker advocates have sharply criticized the new rule for failing to establish a mechanism for future updates, and the new rule is expected to draw legal challenges from supporters of the 2016 rule. Whether there are legal grounds to challenge the legitimacy of the rule remains to be seen. For the time being, employers should make sure they are in compliance with the new federal rule by January 1, 2020.