For the first time in a number of years, overtime regulations under the Fair Labor Standards Act (FLSA) have been updated. This modest development increases the earning threshold necessary to exempt executive, administrative or professional employees from the FLSA’s minimum wage and overtime pay requirements and allows employers to use a portion of certain bonuses towards meeting this new earning threshold. Below is a brief overview of the new rule's requirements and what employers can do to ensure they are in compliance.

What does the new rule require?

Specifically, the U.S. Department of Labor (DOL) rule:

• raises the “standard salary level” for executive, administrative or professional employees from $455 to $684 per week (equivalent to $35,568 per year for a full-time worker);
• raises the total annual compensation level for “highly compensated employees” from $100,000 to $107,000;
• allows employers to count nondiscretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy 10% of the standard salary level; and
• revises the special salary levels for workers in U.S. territories and in the motion picture industry.

This DOL rule becomes effective on January 1, 2020.

In order to comply with this rule by the effective date, employers should review the status of all employees who currently earn below the new earning threshold but were previously exempt. Employers will then have to decide whether they would rather reclassify those employees as nonexempt hourly workers or increase their salaries to meet (or exceed) the new earning threshold.

Employers that choose to reclassify previously exempt employees to nonexempt hourly employees should be prepared to pay for overtime pay or plan to limit overtime hours and reallocate extra work. If employers opt to increase employees’ salaries to meet the new threshold, they must assess whether employees’ job duties qualify them for an executive, administrative or professional exemption.

Employers that opt to increase employees’ salaries should also be mindful that 10% of the earning threshold can be met by including nondiscretionary bonuses and incentive payments that occur at least annually. However, employers should monitor the bonus process and incentive payment process to ensure that the 10% threshold is met and the employees’ salary earnings and nondiscretionary bonus earnings add up to the earning threshold.