Benefits Byte

September 24, 2019

DOL Finalizes Overtime Rule

In final regulations released on September 24, the U.S. Department of Labor’s (DOL) Wage and Hour Division outlined a significant expansion in the number of American workers eligible for overtime. The final rule will be effective on January 1, 2020.

Under current law, established in 2004, employees with a salary below $455 per week ($23,660 annually) must be paid overtime if they work more than 40 hours per week. Workers making at least this salary level may be eligible for overtime based on their job duties. The final regulations make no changes to the jobs duties test. They do, however:

  • Raise the “standard salary level” from $455 to $684 per week (equivalent to $35,568 per year for a full-year worker). (A 2016 final rule, which would have raised the threshold even higher, to $47,476 (as described in the May 18, 2016, Benefits Byte) has been held up in federal court until new regulations could be issued.)
  • Raise the total annual compensation level for "highly compensated employees (HCE)" from the currently-enforced level of $100,000 to $107,432 per year.
  • 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, in recognition of evolving pay practices.
  • Revise the special salary levels for workers in U.S. territories and in the motion picture industry.

Aside from the obvious compensation and payroll tax implications, this rulemaking is significant for employers who include overtime compensation in the formula for retirement plan contributions as it could increase any required employer contributions. The change could also affect plans that exclude overtime pay from the plan’s definition of compensation if the new overtime pay causes the plan to become discriminatory in favor of highly compensated employees.

A fact sheet and set of frequently asked questions are also available on the DOL website. For more information on overtime compensation and interactions with retirement plans, contact Diann Howland, vice president, legislative affairs, Lynn Dudley, senior vice president, global retirement and compensation policy, or Jan Jacobson, senior counsel, retirement policy, at (202) 289-6700.