Reed Smith Client Alerts

The U.S. Department of Labor (DOL) has published a highly anticipated final rule that updates the salary thresholds necessary to qualify for overtime exemptions - often referred to as the "salary level test" - under the Fair Labor Standards Act (FLSA) (the 2019 Final Rule)1. This rule will replace the prior final rule published on May 23, 2016 (the 2016 Final Rule) under the Obama administration, which was enjoined in 2016 and remains the subject of an abated appeal pending before the Fifth Circuit Court of Appeals. Critically, the new rule takes effect on January 1, 2020 - requiring employers to take immediate action.

Authors: Michael A. Correll Modinat “Abby” Kotun

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The DOL published the Notice of Proposed Rulemaking (NPRM) underlying the new rule on March 22, 2019. In response, the DOL received more than 116,000 comments. Based on those comments, the DOL made several changes that are reflected in the 2019 Final Rule.

The 2019 Final Rule, which will take effect on January 1, 2020, will affect the salary level test as follows:

  • Raises the standard salary level from $455 per week ($23,660 per year) to $684 per week ($35,568 per year). This is significantly lower than the invalidated 2016 Final Rule, which would have raised the threshold to $913 per week ($47,476 per year).
  • Allows up to 10 percent of the salary level to be satisfied by payment of nondiscretionary bonuses, incentives, and commissions that are paid annually or more frequently. The rule also provides for an end-of-year catch-up payment if such bonuses fall short of the threshold.
  • Modestly updates the highly compensated employee (HCE) total annual compensation level to $107,432 from the current level of $100,000. The DOL abandoned a much higher proposed threshold of $147,414 in response to comments following publication of the NPRM.

The 2019 Final Rule also creates an alternative salary level schedule for U.S. territories and creates an exemption from the salary basis test for the motion picture industry under certain circumstances.