DOL Finalizes Long-Awaited Minimum Salary Threshold for Overtime Pay

Author: David B. Weisenfeld, XpertHR Legal Editor

September 24, 2019

The US Department of Labor (DOL) announced today that it will raise the minimum threshold for mandatory overtime pay under the Fair Labor Standards Act (FLSA) to $35,568 from its current level of $23,660. The new rate will take effect January 1, 2020, and is expected to cover an additional 1.3 million workers who are ineligible under the current overtime rule.

To be exempt from overtime under the FLSA, employees must be paid a salary of at least the threshold amount, as well as meet certain duties tests. If either condition is not met, they must be paid for hours worked in excess of 40 in a workweek at one and one-half times their regular hourly rate.

In addition to raising the standard salary level for full-time employees, the DOL's final rule also will:

  • Allow employers to use nondiscretionary bonuses and incentive payments, including commissions, to count for up to 10% of the standard salary level so long as those bonuses are paid annually;
  • Raise the annual compensation requirement for "highly compensated employees" from $100,000 per year to $107,432; and
  • Revise the special salary levels for workers in US territories as well as the motion picture industry.

Speaking to XpertHR after the increase was first proposed, former DOL Wage and Hour Administrator Tammy McCutchen had said there was an urgency to finalize the new overtime rule before 2020.

While the long-awaited rule represents an increase of nearly $12,000, it falls short of the Obama administration's 2016 overtime rule which would have raised the threshold to $47,476 per year. A federal district court in Texas invalidated the 2016 rule before it could take effect, finding that the DOL had exceeded its authority by setting the salary level too high. Business groups had opposed that threshold and claimed it would lead to increased litigation.

Several states, including California and New York, have salary thresholds for overtime eligibility that already exceed the new federal standard.

McCutchen acknowledged the opposition of some employee groups to the new federal minimum threshold earlier this year, but said, "It's a floor where the numbers have to work in every state, in California and Mississippi. In particular, it cannot have a negative economic impact in those states and in the rural South, the rural Midwest."

This increased minimum federal threshold for overtime pay will represent the first change since 2004 once it takes effect.