The US Department of Labor issued its final overtime rule yesterday, increasing the amount “executive, administrative or professional employees” must be paid in order for companies to exempt them from overtime.
The final rule raises the salary level to $685 per week ($35,568 annually), under which overtime pay will be required when employees work more than 40 hours per week. The existing rule’s threshold is $455 per week.
“This rule brings a commonsense approach that offers consistency and certainty for employers as well as clarity and prosperity for American workers,” said acting US Secretary of Labor Patrick Pizzella.
The new rule also raises the total annual compensation level for highly compensated employees — who are exempt from overtime — to $107,432 per year from $100,000.
In addition, it allows “employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10% of the standard salary level, in recognition of evolving pay practices,” according to the department.
The final rule takes effect on Jan. 1 and will affect an estimated 1.3 million employees.
An analysis by law firm Littler Mendelson [1] noted the final rule does not include automatic updating of minimum salary requirements. However, the DOL said it would “update the standard salary level and HCE total compensation levels more frequently in the future using notice-and-comment rulemaking every four years.”
A previous rule established by the Obama administration was rejected by a federal court in Texas in 2017. That rule would have required workers to be paid $913 per week, or $47,476 annually, before they were not automatically eligible for overtime.
“The new rule grants minor relief by raising the exempt salary floor less than the previous proposal, raising the minimum salary for the highly-compensated exemption, counting some incentive pay as salary, and allowing retroactive ‘catch-up’ bonuses,” said George Reardon, an attorney who works with the staffing industry.
“However, the most urgently needed reform was ignored — clarification of the qualitative definitions of exempt white-collar work,” Reardon said. “Widespread noncompliance and punitive enforcement actions will continue.”
Meanwhile, Tuesday’s announcement of the new rule was met with concern by the National Employment Law Project.
“The Trump Labor Department’s rule says that if you make more than $35,568 a year, you’re a highly paid executive, administrator, or professional who doesn’t need overtime pay,” according to a statement by Christine Owens, executive director of the National Employment Law Project. “It will mean that millions more workers can be made to work 50, 60, or even 70 hours a week, missing time with their families and receiving no extra pay at all for their long hours and dedication.”
Owens said the new rule could be challenged in court.