DOL Proposes New Salary Threshold for White-Collar Overtime Exemption

On March 7, 2019, the U.S. Department of Labor (DOL) proposed its much-awaited rule to expand overtime protections for executive, administrative, and professional employees under the Fair Labor Standards Act (FLSA). The proposed rule increases the salary threshold for exempt white-collar employees to $35,308 (or $679 per week) and raises the salary threshold for highly compensated employees to $147,414. While it will take some time for a rule to be finalized, employers should be prepared to raise salaries and ensure overtime is properly paid once a new rule goes into effect.

Background

The FLSA requires employers to pay employees overtime when they work more than 40 hours in a week. However, the statute exempts from the overtime requirement “any employee employed in a bona fide executive, administrative or professional capacity.” Employees must satisfy several criteria to meet the exemption, including being paid a minimum of $455 per week. The salary threshold hasn’t changed since 2004.

Under the Obama administration, the DOL published a new overtime rule that proposed to double the minimum salary threshold for exempt employees to $913 per week. That rule was set to become effective on December 1, 2016, but a federal court in Texas entered a nationwide injunction blocking the DOL from enacting the rule. The Trump administration later abandoned the effort to implement the Obama-era rule, and it never became effective.

Proposed Rule

Most notably, the DOL’s new proposed rule increases the minimum salary to qualify as exempt from overtime to $679 per week, which is the equivalent of a yearly salary of $35,308. The proposed rule also includes the following changes:

• It increases the total annual compensation requirement for employees to qualify for the “highly compensated employee” exemption from $100,000 to $147,414 per year.
• It allows employers to use nondiscretionary bonuses and incentive payments received at least annually, including commissions and other payments tied to productivity and profitability, to satisfy 10 percent of the minimum salary threshold.
• It requires the DOL to conduct periodic reviews of the minimum salary threshold to ensure it stays consistent with future wage rates and inflation. However, any future increases will not be automatically implemented and are subject to the notice-and-comment rulemaking requirements.

It’s worth noting that the proposed rule doesn’t
change the regulations governing overtime for police officers,
firefighters, paramedics, nurses, laborers such as
nonmanagement production-line employees, and nonmanagement
employees in maintenance, construction,
and similar occupations.

Bottom Line

The proposed rule would become effective by January 2020. First, it must undergo a 60-day comment period and satisfy other procedural requirements.

Nevertheless, employers should be aware of the potential new salary threshold for white-collar employees and other requirements in the rule. You will need to have a plan to transition any employees who don’t meet the duties test and the new salary threshold from exempt to nonexempt status.