Effective Jan. 1, 2020, as a result of a new overtime rule, 29 CFR 541, the Department of Labor estimates that 1.2 million additional workers will be entitled to minimum wage and overtime pay as a result of the increase to the standard salary level.
The Department also estimates that an additional 101,800 workers will be entitled to overtime pay as a result of the increase to the HCE (highly compensated employees) level.
The History Behind the Fair Labor Standards Act
Signed into law in 1938, the Fair Labor Standards Act (FLSA) was the first federal law to adopt a minimum wage, overtime pay (at one-and-a-half times regular pay), child labor requirements, and recordkeeping provisions.
The act applies to most, but not all, public and private sector employees. Between its initial adoption and 2004, the FLSA underwent several changes, primarily consisting of overtime salary-level threshold revisions for certain employees, such as those in executive, administrative, and professional positions.
As a general group, these types of employees are commonly referred to as “white collar” or “EAP” (executive, administrative, and professional” employees). Note that computer and outside sales employees are also included in the new ruling.
It wasn’t until 12 years later, in December 2016, that increases in the overtime salary-level thresholds were scheduled to take effect. However, the U.S. Chamber of Commerce, and over 50 other business groups, opposed the changes and filed a lawsuit.
In addition, 21 states filed an emergency motion to prevent the rule from being enacted. The fundamental objection: a dramatic rise in overtime costs would put thousands of employers out of business.
The lawsuit and the motions were combined, and a federal judge temporarily blocked the rule from taking effect just ten days before its scheduled implementation date. Then in August 2017, another federal judge permanently blocked the rule’s implementation. The government first appealed the decision but then informed the court further rulemaking efforts were in progress.
As a result, the new final overtime rule was issued on Sept. 27, 2019, and it went into effect on Jan.1, 2020.
What Does the New Rule Do?
According to the DOL, the final rule:
- raises the “standard salary level” from the currently enforced level of $455 per week to $684 per week (equivalent to $35,568 per year for a full-year worker);
- raises the total annual compensation requirement for “highly compensated employees” from the currently enforced level of $100,000 per year to $107,432 per year;
- allows employers to use nondiscretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10% of the standard salary level, in recognition of evolving pay practices; and
- revises the special salary levels for workers in U.S. territories and the motion picture industry.
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