Overtime Threshold Set at $35,568 a Year

Raising the ante slightly on its original proposal, the Department of Labor (DOL) today published its final overtime rule, setting the salary exemption threshold at $35,568 a year, or $684 a week. The original proposal was for $35,308 annually, or $679 a week. Acting Labor Secretary Patrick Pizzella The rule takes effect Jan. 1. According to a DOL senior official, today's action will make an additional 1.3 million workers eligible for overtime come 2020. The rule does not change the duties test to determine who's exempt from overtime. "For the first time in over 15 years, America's workers will have an update to overtime regulations that will put overtime pay into the pockets of more than a million working Americans," Acting U.S. Secretary of Labor Patrick Pizzella said. "This rule brings a commonsense approach that offers consistency and certainty for employers as well as clarity and prosperity for American workers." The DOL derives its authority to set overtime rules from the Fair Labor Standards Act (FLSA) of 1938. In addition to the annual salary threshold hike, the DOL is:

• raising the total annual compensation level for "highly compensated employees (HCE)" from the currently-enforced level of $100,000 to $107,432 per year;
• allowing employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10 percent of the standard salary level, in recognition of evolving pay practices; and
• revising the special salary levels for workers in U.S. territories and in the motion picture industry.

A coalition of Blue State (Democrat) attorneys general is poised to challenge the new rule in court, arguing that the existing duties test makes it too easy for employers to classify workers as managers, thus making them exempt from overtime. The Obama administration had an even heftier version of the overtime rule in 2016, which would have established an annual salary threshold of $47,476 a year, but that rule was eventually invalidated by a district judge in Texas. The 5th U.S. Court of Appeals in New Orleans has held an appeal of that judge's decision in abeyance as the DOL worked to rewrite the invalidated rule. The current salary threshold, established in 2003, stands at $455 a week, or $23,660 a year.