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New Overtime Rule Raises Salary Cut-Off to $35,568

September 26, 2019

Posted by SHRM9/24/19 - By Lisa Nagele-Piazza, J.D., SHRM-SCP

Employees who make less than $35,568 are now eligible for overtime pay under a final rule issued today by the U.S. Department of Labor (DOL). The new rate will take effect Jan. 1, 2020.

To be exempt from overtime under the federal Fair Labor Standards Act (FLSA), employees must be paid a salary of at least the threshold amount and meet certain duties tests. If they are paid less or do not meet the tests, they must be paid 1 1/2 times their regular hourly rate for hours worked in excess of 40 in a workweek.

The new rule will raise the salary threshold to $684 a week ($35,568 annualized) from $455 a week ($23,660 annualized). A blocked Obama-era rule would have doubled the threshold, but a federal judge held that the DOL exceeded its authority by raising the rate too high.

The new rule is expected to prompt employers to reclassify more than a million currently exempt workers to nonexempt status and raise pay for others above the new threshold.

The Society for Human Resource Management (SHRM) is pleased that the DOL has finalized the overtime rule. "Employees and employers have been waiting for an overtime salary adjustment for over 10 years," said Nancy Hammer, SHRM's vice president of regulatory and judicial engagement. "Today's rule provides important clarity for the workplace on FLSA implementation," she said.

Here's what employers need to know about the new rule.

The Details

Under the new rule, nondiscretionary bonuses and incentive payments (including commissions) paid on an annual or more frequent basis may be used to satisfy up to 10 percent of the standard salary level.

In addition to raising the salary cutoff for exempt workers, the new rule raises the threshold for highly compensated employees from $100,000 a year to $107,432 (of which $684 must be paid weekly on a salary or fee basis). The increase is about $40,000 less than what the DOL initially proposed because it is based on the 80th percentile, rather than the 90th percentile, of all full-time salaried workers' earnings nationwide.
For the FLSA's executive, administrative and professional exemptions—the so-called white-collar exemptions—employees must perform certain duties and earn at least the salary threshold. But under a special rule, highly compensated employees are eligible for exempt status if they meet a reduced duties test as follows:

The employee's primary duty must be office or nonmanual work.
The employee must "customarily and regularly" perform at least one of the bona fide exempt duties of an executive, administrative or professional employee.
Employers should note that the rule doesn't make any changes to the duties tests.

Also, unlike the overtime rule that President Barack Obama's administration put forward in 2016, the new rule doesn't include automatic adjustments to the exempt salary threshold. To view the full article please click here.