On September 24, 2019, the Department of Labor announced its new overtime rule increasing the minimum weekly salary level from $455 to $685 (equivalent to $35,568 per year) for employees with white-collar duties (executive, administrative, or professional) who are exempt from overtime pay. The rule also lifts the total annual compensation level of exempt highly compensated employees from $100,000 to $107,432. And it allows “employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10 percent of the standard salary level, in recognition of evolving pay practices,” according to the department.
The current salary levels for white-collar employees and highly compensated employees were set in 2004. Under President Obama, the DOL had increased the standard salary level from $455 to $913 per week ($47,476 per year). But that rulemaking was challenged and the rule invalidated in 2017. According to the department, the new rule will make 1.3 million workers newly eligible for overtime pay. In order to be exempt, employees must meet the following tests:
- (1) the employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the “salary basis test”);
(2) the amount of salary paid must meet a minimum specified amount (the “salary level test”); and
(3) the employee’s job duties must primarily involve office or non-manual work that qualifies as executive, administrative or professional duties as defined by the regulations (the “duties test”).
The new rule is effective on January 1, 2020.