New Department of Labor Rule on Minimum Wage and Overtime

On September 24, 2019, the United States Department of Labor issued a final rule which revises minimum wage and overtime regulations.

Currently, and under the new rule, for an employee to be exempt from receiving overtime pay both a duties and a minimum salary test has to be met. The new rule does not change the duties test. However, starting January 1, 2020, the salary test will be raised from the current minimum rate of $455 per week ($23,660 per year) to a minimum rate of $684 per week ($35,568 per year) in order for an employee to be exempt from overtime pay, which is at one and one-half the base rate. No employee will be exempt from receiving overtime, regardless of their job, if the new minimum is not paid. 

As a result of the new rule, it is expected that as many as 1.3 million more employees will become eligible to receive overtime pay. Employers will have to make a case by case determination as to whether it makes more economic sense to raise an employee’s salary to the new minimum and thereby avoid paying overtime, or keep a current salary below the new minimum and pay the overtime rate when an employee works more than 40 hours in a workweek.

 

The new rule also raises the threshold for the “highly paid employee” exemption from $100,000 per year salary to $107,432.

 

As the new rule takes effect and if salaries are raised, employers will have to take care to adjust their withholdings appropriately.