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Friday, September 27, 2019

Department of Labor's Final FLSA Rule re: White-Collar Overtime Exemptions

On September 24, 2019, the United States Department of Labor released its final revised overtime rule under the Fair Labor Standards Act, 29 U.S.C. § 201 et. seq. (“FLSA”). 

Prior to the rule, the longstanding overtime exemption requirements were: (1) employee is paid on a salary basis rather than an hourly wage basis; (2) employee is paid at a salary level of at least $23,660 annually (or $455 per workweek); and (3) employee’s duties meet the elements of a professional, administrative, executive, or outside sales (collectively referred to as “white-collar”) exemption.  Requirements (1) and (3) remain unchanged by the new rule.  However the rule significantly modifies requirement (2) by raising the threshold salary level to $35,568 annually (or $684 per workweek).  Consequently, “white-collar” employees with a salary less than that amount will no longer be exempt, and therefore will need to record their time and be paid overtime for working more than 40 hours in a workweek.  This changed salary level has the potential to affect the wages of over 1.3 million U.S. workers. 

The rule goes into effect January 1, 2020, and applies to all employers covered by the FLSA.  In addition, the final rule modifies the threshold for “highly compensated” employees, who will now have to be paid an annual salary of $107,432 (previously $100,000) in order to meet that exemption. 

As a result of this final rule, employers should undertake a comprehensive and careful audit of their current wage and salary structure to ensure that they make appropriate adjustments for salaried employees classified as exempt currently earning between $23,660 and $35,568.  Based on each employer’s needs and staffing practices, there are several potential ways in which compliance with the new rule can be achieved, including: raising salaries, decreasing salaries to account for anticipated overtime, reclassifying employees, limiting or requiring pre-approval for overtime hours, redistributing workloads, using more part-time employees, using outside vendors to perform certain functions, and restructuring salaries to include bonuses/incentive pay. Employers may also want to reconsider and update all of their exempt/nonexempt classifications, particularly with regard to jobs that have changed since the last update of the rule in 2004. 

The foregoing is for informational purposes only and does not constitute legal advice regarding any particular situation and should not be relied on as such.  Please contact one of our labor and employment lawyers if you have any questions.  

This update was prepared by Charles S. Elbert and Erin M. Leach.

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