Overtime Rule Becomes Final at $35,568 – Based on Formula Advocated by NPMA

On September 24, 2019, the U.S. Department of Labor (DOL) revised the earnings thresholds necessary to exempt executive, administrative and professional employees from the Fair Labor Standards Act’s (FLSA) minimum wage and overtime pay requirements and allows employers to count a portion of certain bonuses/commissions towards meeting the salary level. The new thresholds account for growth in employee earnings since the thresholds were last updated in 2004. NPMA favored the formula used in 2004 by the George W. Bush Administration, using the lowest census region’s national salary level and explicitly argued:

“When the Department determines it is appropriate to update the salary level, NPMA would suggest using the methodology used in 2004, which is basing the salary level on the 20th percentile of earnings of full-time salaried workers in the lowest-wage Census Region (currently the South). The 2004 methodology continued the tradition of setting the salary level based on actual salary and wages and made two adjustments 1.) raised the percentile due to the adoption of the “standard” duties-test and 2.) based the national salary level on the lowest census region.”

The formula used in the Final Rule mirrors NPMA’s recommendation with:

“The Department is setting the standard salary level at $684 per week ($35,568 for a full-year worker). The salary amount accounts for wage growth since the 2004 rulemaking by using the most current data available at the time the Department drafted the final rule. The Department is updating the standard salary level set in 2004 by applying to current data the same method and long-standing calculations used to set that level in 2004—i.e., by looking at the 20th percentile of earnings of full-time salaried workers in the lowest-wage census region (then and now the South), and/or in the retail sector nationwide.”

The Final Rule goes into effect on January 1, 2020 and please view these summary points on actions taken by DOL:

• Raises the “standard salary level” from the currently enforced level of $455 per week to $684 per week (equivalent to $35,568 per year for a full-year worker);
• Raises the total annual compensation requirement for “highly compensated employees” from the currently enforced level of $100,000 per year to $107,432 per year;
• Allows 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

Revises the special salary levels for workers in U.S. territories and the motion picture industry.