2020 Overtime Update: Trump Administration’s New Overtime Rules Effective on January 1, 2020

New overtime exemption rules will finally go into effect in 2020. For 2020 and beyond, employers may need to reclassify certain previously exempt positions as non-exempt if compensation is below the new “standard salary level.” Of course, if reclassified as non-exempt, these employees would generally be eligible for overtime pay under federal law.

Employers will recall that the Obama administration proposed new rules in 2016 increasing the salary threshold to qualify for an exemption from the overtime and minimum wage requirements. The Obama administration’s proposal would have drastically reduced the number of employees eligible for “exempt” status under the wage and hour laws and increase the number of employees eligible to receive overtime pay. A federal appellate court eventually blocked the Obama-era changes before they could go into effect.

In March of this year, the Trump Labor Department proposed far less aggressive changes to the overtime exemption rules. It appears that the rules will now actually go into effect on January 1, 2020. It will be the first successful update since 2004. The Trump Labor Department has increased the minimum salary required for most employees to qualify as exempt from the current $455 per week ($23,660 per year) to $684 per week ($35,568 per year). The Department of Labor says that it updated the 2004 “standard salary level” by “looking at” the current 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 new rules also raise the total annual compensation level for “highly compensated employees” (HCEs) from the currently enforced level of $100,000 to $107,432 per year. Further, the rules allow 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” for exemption purposes. This, according to the Labor Department, is in recognition of “evolving pay practices.”

Unlike the earlier, unsuccessful 2016 proposal, the new 2020 rules will not adjust the exemptions’ “standard salary level” automatically. The Trump rules scrapped the previous administration’s controversial automatic adjustment mechanism. The current Department of Labor states only that it “intends to update the standard salary and HCEs total annual compensation levels more regularly in the future through notice-and-comment rulemaking.”

For more information, please contact Karl Ulrich at 937.222.2052 or by email at kulrich@ssdlaw.com.