On Sept. 24, the U.S. Department of Labor (DOL) announced a final rule, which updates the earnings thresholds necessary to exempt executive, administrative and professional employees from the Fair Labor Standards Act's minimum wage and overtime pay requirements and allows employers to count a portion of certain bonuses or commissions toward meeting the salary level. The final rule will be effective on Jan. 1, 2020.

The DOL is updating both the minimum weekly standard salary level and the total annual compensation requirement for "highly compensated employees" to more accurately reflect growth in wages and salaries. The new thresholds account for growth in employee earnings, since the currently enforced thresholds were set in 2004. The DOL believes that the update to the standard salary level will maintain the traditional purposes of the salary level test and will help employers more readily identify exempt employees. The DOL is also revising the special salary levels for employees in U.S. territories and the special base rate for employees in the motion picture producing industry.

In the final rule, the DOL is:

• Raising the "standard salary level" from the currently enforced level of $455 per week ($23,000 per year) to $684 per week (equivalent to $35,568 per year for a full-year worker);

• Raising the total annual compensation requirement for "highly compensated employees" from the currently enforced level of $100,000 per year to $107,432 per year;

• Allowing employers to use nondiscretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10% of the standard salary level, in recognition of evolving pay practices; and

• Revising the special salary level for workers in U.S. territories and the motion picture industry.

In 2014, the Obama administration tried to double the threshold to include workers earning up to $913 per week ($47,476 per year). This change created quite an uproar. In 2016, a final rule to change the overtime thresholds was enjoined by the U.S. District Court for the Eastern District of Texas on Nov. 22, 2016, and was subsequently invalidated by that court. As of Nov. 6, 2017, the U.S. Court of Appeals for the Fifth Circuit has held the appeal in abeyance pending further rulemaking regarding a revised salary threshold. As the 2016 final rule was invalidated, the DOL has consistently enforced the 2004 level throughout the last 15 years: $455 per week standard salary level and a $100,000 total annual compensation threshold for highly compensated employees.

The new thresholds account for growth in employee earnings since the thresholds were last updated in 2004. Nearly every person who commented on the department's 2017 request for information, participated at listening sessions in 2018 regarding the regulations, or commented on the notice of proposed rulemaking agreed that the thresholds needed to be updated for this reason. The DOL estimates that 1.3 million additional workers will be entitled to wage and overtime pay as a result of the increase to the standard salary level. The DOL also estimates that an additional 102,000 workers will be entitled to overtime pay as a result of the increase to the "highly compensated employees" compensation level. In the final rule, the DOL also permits employers to use nondiscretionary bonuses and incentive payments to satisfy up to 10% of the standard salary level. For employers to credit nondiscretionary bonuses and incentive payments toward a portion of the standard salary level test, they must make such payments on an annual or more frequent basis.

The DOL believes this change is necessary because, based on their experience, fixed earning thresholds become substantially less effective over time. Furthermore, lengthy delays between threshold updates necessitate disruptively large increases when overdue updates ultimately occur. Accordingly, in the final rule, the DOL reaffirms its intent to update the earnings thresholds more regularly in the future through notice-and-comment rulemaking.

It should also be noted that the FLSA provides minimum wage-and-hour standards but does not prevent Florida from establishing its own protective standards. If Florida were to establish a more protective standard than the new provisions of the FLSA, then the higher standard would apply.

Additional information about the final rule is available on the DOL website.

This final rule has been submitted to the Office of the Federal Register (OFR) for publication and is currently pending placement on public inspection at the OFR and publication in the Federal Register. This version of the final rule may vary slightly from the published document if minor technical or formatting changes are made during the OFR review process. Only the version published in the Federal Register is the official final rule.

Taylor Greene is an associate with the Miami-based law firm Allen Norton & Blue, the statewide firm devoted exclusively to the practice of labor and employment Law. Contact him at [email protected].