The Department of Labor (DOL) has recently undertaken a revision of the Fair Labor Standards Act (FLSA,) which updates the earnings threshold necessary to be exempt from overtime, making 1.3 million workers newly eligible. In the past, “highly compensated employees” have been exempt from overtime, but the DOL is now changing the minimum weekly and yearly pay amounts needed to qualify as “highly compensated.” This new deferral rule regarding who can be exempt from overtime is meant to reflect growth over wages and salaries since 2004, when the previous threshold was set.

The rate changes are as follows:

• The minimum weekly rate to be considered a “highly compensated employee” has been changed from $455 to $684 per week.
• The minimum yearly wage threshold has been raised from $100,000 t0 $107,432

As part of the update, employers are permitted to use nondiscretionary bonuses and incentive payments in compensation calculations (up to 10% of the employee’s total income) provided that these payments are made at least annually. If an employee does not receive enough nondiscretionary bonuses or incentive payments to retain “exempt” status, the employer is given a grace period to assign these extra payments within one pay cycle of the 52-week period. If the employer chooses to make this extra payment, it counts towards the salary level of the year that they employer is “catching up” on, but not for the year in which the payment is received.

In addition, special provisions have been made for workers in the motion picture industry, which set the base rate of pay for a highly compensated worker at $1,043 per week for those working in film.

Other notable exceptions to the new ruling include a threshold of $380 per week for workers in American Samoa, where the minimum wage is lower than the Federal minimum wage, and threshold of $455 per week for employees in the U.S. Virgin Islands, Guam, Puerto Rico, and the Commonwealth of the Northern Mariana Islands.

The Department of Labor has pledged to update the overtime earnings threshold more regularly in the future, since fixed earning thresholds tend to become less effective over time. More frequent updating will also lessen the large increases that are necessary when updates are farther apart. The fifteen-year period between the 2004 threshold ruling and the 2019 update did not serve workers within that time period, and could be considered disruptive to employers, since the large increase in the weekly and yearly thresholds grants “non-exempt” status to so many workers.

Updating the FLSA on a regular basis should avoid these problems in the future, and ensure that employee wage thresholds are informed by the current work landscape, and that their employers have the information needed to make changes to their pay scales to retain “exempt” status for employees that they would like to be considered highly compensated.

If you currently have workers classified as exempt, be sure to review their compensation to make sure they meet the minimum pay to remain not subject to overtime.

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