New Overtime Rule Brings Changes for Exempt Workforce

Effective January 1, 2020, all overtime-exempt employees must be paid a salary of not less than $684 per week ($35,568 per annum for a full-year worker). This represents an increase in the salary for overtime-exempt employees from $455 per week, established in 2004.

Employees are entitled to be paid overtime for all hours worked in excess of 40 in one work week unless they meet the Federal definition of exempt employees. Exempt employees are generally executive, professional, administrative, computer technicians and outside salesmen. Each category of exempt employee must meet the criteria defined by the Fair Labor Standards Act. The first element of each test in establishing an exempt employee is that the employee must be paid on a salary basis. The salary is not generally affected by the quality or quantity of the work of the employee. The new rule changes that salary from $23,660 per year for a full-year worker to $35,568 per year. Salary is not the only factor in defining an exempt employee. Key considerations are the employee's job duties, not job title.

The Department of Labor permits employers to use non-discretionary bonuses and incentive payments to satisfy up to 10% of this standard salary level. An employer may credit non-discretionary bonuses and incentive payments toward a portion of the standard salary so long as such payments are made on an annual or more frequent basis.

This increase is less than the proposed Obama era rule change. In 2016, a Texas Federal judge enjoined the application of a rule which would have increased the minimum salary to $913 per week ($47,476 per year for a full-year worker). It is estimated that the Rule change will cause an additional one million Americans to be eligible for overtime payment.

An employer should be prepared for an increase in labor costs either by losing exempt status for employees making less than $684 per week or increasing exempt employees' salaries to at least that amount. If you have questions about the new rule or exempt and non-exempt status, please contact Kim Lough, partner with Jennings Haug Cunningham's construction and employment law practices. He can be reached at [email protected] or 602.234.7800.