Finally, the Final Part 541 Rule: $35,568 Is the New Salary Threshold for Exempt Employees

In its final part 541 overtime rule, the U.S. Department of Labor’s (DOL) Wage and Hour Division (WHD) set the salary level or amount test at $684 per week/$35,568 per year for exempt executive, administrative, and professional employees of section 13(a)(1) of the Fair Labor Standards Act (FLSA). The total annual compensation test for a highly compensated employee is $107,432. The standard salary level test of $684 is comparable to the amount proposed earlier this year since the WHD used the same methodology as it applied in the notice of proposed rulemaking (NPRM). The total annual compensation level for highly compensated employees of $107,432 is lower than that proposed earlier this year in its NPRM because it is based on the 80^th percentile of weekly earnings of full-time salaried employees nationally.

According to the DOL, which released the final rule on September 24, 2019, this final part 541 overtime rule “has been submitted to the Office of the Federal Register (OFR) for publication, and is currently pending placement on public inspection at the OFR and publication in the Federal Register.” These new thresholds for exemption from both the overtime and minimum wage provisions of the FLSA go into effect on January 1, 2020.

This final rule is the culmination of a long-term effort to increase these salary and total annual compensation requirements—set forth in part 541 of title 29 of the Code of Federal Regulations—which were last increased in 2004. These regulations define and delimit the exemptions for bona fide executive, administrative, and professional employees. As we wrote previously, the DOL/WHD published a notice of proposed rulemaking in March 2019, with a 60-day comment period that expired on May 21, 2019. After its review of the comments, the DOL submitted its draft final rule to the Office of Information and Regulatory Affairs (OIRA) of the Office of Management and Budget on August 12, 2019. OIRA completed its review of the final overtime rule and returned it to the DOL on September 13, 2019.

In addition to finalizing the salary amount test for exempt employees and the total annual compensation requirement for highly compensated employees, the final rule also permits employers to apply non-discretionary bonus and other incentive payments to satisfy up to 10 percent of the standard salary level, provided such non-discretionary payments are paid at least annually or more frequently. Also in keeping with its proposed rule, the final overtime rule does not include a provision that automatically would increase the salary level test or total annual compensation amount on some regular or periodic basis. Most significantly, the final overtime (part 541) rule does not make any changes to any of the duties tests for these exemptions.

As you may recall in 2016, employer-aligned interests brought suit to challenge the final overtime rule issued during the final year of the Obama administration. The litigation was successful, and the 2016 final rule was enjoined by a federal district court in Texas and has never gone into effect. The 2019 final part 541 rule formally rescinds the 2016 final rule. At this juncture, it is difficult to predict whether employee advocates will mount a similar legal challenge to this rulemaking. While several have expressed interest in doing so, almost all of these advocates argue that the salary level test in the 2019 final rule is insufficient. Instead, they support a salary level requirement along the lines of that published in the 2016 rulemaking that set the salary level test at $913 per week/$47,476 per year for exempt executive, administrative, and professional employees..

We will track any potential legal challenges and will provide updates as they happen on Ogletree Deakins’ FLSA Solutions page and Wage and Hour blog. The co-chairs of Ogletree Deakins’ Wage and Hour Practice Group, Alfred B. Robinson, Jr. and Charles E. McDonald, III (shareholder, Greenville) will present a one-hour complimentary webinar, “The Part 541 Overtime Rule: What the New Earnings Thresholds Are and What They Mean for Employers,” explaining the final rule in detail, on Thursday, October 3, 2019, at 2:00 p.m. Eastern. To register for this timely program, click here.