On September 24, 2019, the U.S. Department of Labor (“DOL”) issued its delayed Rule increasing the annual salary level under the Fair Labor Standards Act (“FLSA”) for the overtime exemptions from the current level of $23,660 ($455/week) set in 2004 to $35,568 ($684/week) starting January 1, 2020. As a result, all employees whose employers classifies as exempt from overtime compensation under the FLSA must be paid at least the equivalent of $35,568 annually.  The exempt duties test (for the executive, administrative, professional, computer professional and highly compensated employee classifications) did not change with the new Rule.  The Rule also does not change the federal minimum wage of $7.25 per hour.

However, the salary level for the highly compensated employee exemption increases from the current annual level of $100,000 to $107,432 starting on January 1, 2020. The highly compensated employee exemption still calculates the earnings based on all wages received, but places a cap on non-regular wages, such as non-discretionary bonuses, incentives and commissions, of 10% of all wages received to reach the threshold. The Rule clarifies that discretionary bonuses and other non-regular income like equity awards and the value of in-kind benefits (e.g., gym memberships or reimbursement for travel) do not qualify as compensation for the highly compensated exemption. 

The Rule is an evolution from an earlier DOL proposed rule during the prior administration that increased the salary threshold much higher and ultimately met its demise when enjoined by a Federal District Court ruling in 2016. It is possible that the new Rule also will face legal challenge.

It is critical for employers to recognize that the FLSA salary level is lower than California’s, Maine’s and New York’s exempt salary thresholds that exceed the Federal standard. Thus, employers who operate in these states must satisfy those salary levels for employees covered by those states’ laws, which exceed that of the FLSA. Below is a chart of those states’ salary levels:

Also, some states follow different duties tests that are more stringent than the FLSA.