What Employers Need to Know About the Department of Labor's New Overtime Rule

On September 24, 2019, the Department of Labor unveiled the long-awaited final rule that will extend overtime pay eligibility to more than 1.3 million workers. The new rule raises the maximum salary threshold for employees receiving overtime, which had remained the same since 2004.

Previously, only those earning less than $23,600.00 per year were automatically eligible to receive overtime pay for working more than 40 hours per week. Now, workers who earn up to $35,568.00 per year will be automatically eligible for time-and-a-half pay once they exceed the 40-hour workweek. This is the first time the automatic overtime pay ceiling has been raised in over fifteen years, and the Department of Labor estimates that the rule will transfer approximately $400 million from employers to employees over the next ten years.

Under the new rule, employers can satisfy up to 10% of the $35,568.00 maximum salary threshold via bonuses and commissions that are paid at least once per year. The new rule also raises the salary cutoff for “highly compensated employees,” who are exempt from overtime pay requirements under federal law. A “highly compensated employee” is now defined as an individual who makes more than $107,432.00 per year (up from $100,000.00 under the previous rule).

Employees who make more than the maximum salary threshold for automatic overtime eligibility (i.e., $35,568.00) but less than the threshold for “highly compensated employees” (i.e., $107,432.00) are still potentially able to receive overtime pay, but only if their job duties are not considered “supervisory.” The new rule does not change or alter the test for determining whether individuals between the two thresholds are performing supervisory functions.

The new rule is scheduled to take effect on January 1, 2020, although several worker-advocacy groups have already announced their intention to challenge the rule in court. These groups believe that the Department of Labor’s new mandate fails to raise the maximum salary threshold high enough, thus excluding millions of workers from the ambit of the rule. The scenario is the precise opposite of what occurred in 2016 when a Texas federal court blocked the Obama administration’s efforts to raise the automatic overtime pay-ceiling to $47,500.00.

If your company is experiencing challenges with respect to the administration of its overtime pay program or with the proper classification of employees, the Labor and Employment Group at Burke Warren is standing by and available to assist. Please feel free to contact Burke Warren partner Rachel Bossard at (312) 840-7029 or rbossard@burkelaw.com to discuss these or other pay and employment issues that arise.