Department of Labor Raises Pay Threshold for Exempt Workers to $35K

1.3 million American workers now eligible for overtime pay

Earlier this week, the Department of Labor (DOL) issued the final overtime rule to make an additional 1.3 million American workers eligible for overtime pay. The ruling updates earning thresholds necessary to exempt executive, administrative or professional employees.

What does this all mean?

Under this new rule, salaried workers earning less than $35,500 annually are eligible to receive overtime pay (time-and-a-half) for working more than 40 hours in a week. Previously, the threshold for exempt status was less than $23,700.

The thresholds for employees who are considered “highly compensated” were raised from $100,000 to $107,432. The final rule will be in effect on January 1, 2020.

The final rule, per the DOL:

• Raises the “standard salary level” from $455 to $684 per week (the equivalent of $35,568 per year)
• Increases the total annual compensation level for a “highly compensated employee” from $100,000 to $107,432 per year
• Allows companies to use nondiscretionary bonuses, incentive payments and commissions (all paid at least annually) to satisfy up to 10 percent of the standard salary level
• Revises special salary levels for workers in U.S. territories and in the movie business

These thresholds haven’t been changed since they were set in 2004.

Wasn’t this done before?

Sort of. In 2016, the DOL proposed increasing the salary pay thresholds to under $47,500. While this proposal was originally supported by business groups and employers, there was significant concern that the threshold was too high. The proposal was suspended by a federal judge and the rule never took effect.

The 2016 proposal had also sought to automatically adjust the salary threshold triennially to keep up with cost-of-living rates. Under this new ruling, any changes to the threshold amount must go through a formal review process.

Is that it?

Additional terms of the final overtime rule include:

• A commitment to periodic review to update the salary threshold. An update would continue to require notice-and-comment rulemaking.
• Allowing employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid annually or more frequently to satisfy up to 10% of the standard salary level.
• No changes in overtime protections for police officers; firefighters; paramedics; nurses; laborers including non-management production-line employees; and non-management employees in maintenance, construction and similar occupations such as carpenters, electricians, mechanics, plumbers, ironworkers, craftsmen, operating engineers, longshoremen and other construction workers.
• No changes to the job duties test.
• No automatic adjustments to the salary threshold.

If you’d like to discuss how this impacts your current salary structure for your employees, contact your BMF Advisor.