Today, the U.S. Department of Labor finally announced its long-awaited changes to the regulations regarding overtime compensation. Effective January 1, 2020, the minimum salary required for most exemptions under the Fair Labor Standards Act will rise from $455 per week to $684 per week (or from $23,660 to $35,568 annualized). The minimum salary for the “highly compensated employee” exemption will rise from $100,000 to $107,432 per year.

Additionally, employers will be permitted to use nondiscretionary bonuses and other incentive payments (including commissions) to satisfy up to ten percent (10%) of the required minimum salary, as long as that compensation is paid at least annually. And if an employee fails to earn sufficient incentive compensation in a 52-week period to maintain “exempt” status, the employer may make up the shortfall (up to 10% of the minimum required salary) in a one-time payment in the first pay period after the end of the 52-week period.

The “final rule” announced today is more employer-friendly than the Department’s last attempt to update the overtime regulations, which was enjoined by a federal court in 2016 before the changes could take effect. The final rule issued in 2016 would have raised the minimum salaries for exemption considerably higher, making an estimated 4 million workers eligible for overtime pay, and it would have provided for automatic increases in the salary thresholds going forward. The final rule announced today is predicted to make 1.3 million workers overtime-eligible and does not provide for any automatic adjustments in the future.

On March 7, 2019, the United States Department of Labor issued a notice of proposed rulemaking that would change the minimum salary levels necessary for an employee to be properly classified as exempt from the overtime compensation requirements of the Fair Labor Standards Act.  Under the proposed rule, the minimum salary for most exemptions would rise from $455 per week ($23,660 annualized) to $679 per week ($35,308 annualized).  The minimum annual compensation for the “highly compensated employee” exemption would rise from $100,000 to $147,414.

For employees in the executive, administrative and professional exemptions, the proposed rule would permit nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to ten percent (10%) of the required minimum salary.  In addition, provided that the employee has received at least ninety percent (90%) of the required minimum compensation in each payroll week for 52 weeks, the employer would be permitted to make a single “catch-up” payment within one pay period after the end of the 52-week period, in order to bring the employee’s compensation to the required level.

For “highly compensated employees,” the proposed rule would require that ten percent (10%) of the minimum annual compensation be paid in the form of a weekly salary, but the remainder could be paid in the form of nondiscretionary bonuses and incentive payments.  In addition, the rule would also permit a “catch-up” payment as described above.

The proposed rule would formally rescind the Obama-era rule proposed in 2016, which was blocked by permanent injunction before it