New Overtime Rule Takes Effect Today

New Year's Day ushers in a new Department of Labor (DOL) overtime rule, which raises the salary exemption threshold from $23,660 a year to $35,568, or from $455 a week to $684. Those employees making less than that new amount are eligible for overtime pay. According to a DOL senior official, the new exemption threshold 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. Though some states, such as California, already have statutory higher thresholds, for the vast swatch of the businesses in the U.S., many employers now have to decide whether to raise affected workers' salaries or establish overtime monitoring standards. 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 was 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, but nothing has happened yet. 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 held an appeal of that judge's decision in abeyance while the DOL worked to rewrite the invalidated rule.