DOL Unveils Final Rule Adjusting Overtime Pay Exemption Threshold

On September 24, 2019, the U.S. Department of Labor (DOL) unveiled its long-awaited final rule under the Fair Labor Standards Act (FLSA) adjusting the overtime pay exemption threshold from $23,600 to $35,568. This increase is a critical change for many employers that have salaried workers earning less than $35,568 but more than $23,600, as they may now have to pay such workers overtime.

Effective January 1, 2020, employees who make less than $35,568 will be entitled to overtime pay at a rate of one and one-half times the employee's regular rate of pay for all hours worked beyond 40 hours in a workweek. Employees who (i) make $35,568 or more on a salary basis and (ii) perform duties that fall within one of the long-established exemptions from overtime pay (e.g., executive, administrative, or learned professional duties, among others) are exempt from the overtime pay requirement under federal law. 

The $35,568 figure is substantially lower than the $47,500 figure previously proposed by the Obama administration. Furthermore, while the proposed Obama administration rule included a mechanism to automatically update the exemption threshold every three years, this final rule includes no such mechanism and is instead a one-time change.

In order to prepare for the January 1, 2020 effective date, employers should adjust the exemption status for previously exempt employees who earn less than $35,568 annually and update their timekeeping and payroll practices accordingly to ensure overtime wages are paid. Additionally, the impact of such overtime pay on the organization's budget, beginning with calendar year 2020, will need to be taken into account.

For employees who earn slightly less than $35,568 per year, employers may wish to consider increasing the employee's salary to $35,568 or more, in lieu of paying overtime. Legal counsel can assist in determining whether an employee earning at least that amount should be classified as exempt from overtime wages based on his or her job duties.

Penalties for non-compliance with the FLSA's overtime rules can be severe, including back pay and liquidated damages. Non-compliant employers may face a DOL audit, a lawsuit in court, or an administrative charge. Employers should use the time between now and the January 1, 2020 effective date to carefully plan ahead, to mitigate their overtime pay risk.