On March 7, 2019, the United States Department of Labor issued a proposed new overtime rule that will raise the minimum salary threshold for workers to qualify for the white-collar exemption to the overtime provisions of the federal Fair Labor Standards Act (FLSA). Under the proposed Rule, the salary threshold will increase to $679 per week (equivalent to $35,308 annually) from $455 per week (equivalent to $23,660 annually), expanding overtime eligibility to more than one million workers.
Efforts to modify the salary threshold have faced somewhat of a tortured past. In 2016, the Obama administration sought to increase the threshold to $47,476 ($913/week). That proposal was met with litigation that culminated in a nationwide injunction being issued by a federal judge in Texas. While the case was on appeal, the newly elected Republican administration decided to voluntarily withdraw the appeal, leaving the injunction in place. The new proposed Rule that was issued on March 7 strikes a compromise between the widely perceived out-of-date salary threshold currently in place and the dramatic increase proposed by the Obama Administration.
In addition to raising the minimum salary threshold, the proposed Rule sets forth other changes, including raising the Highly Compensated Employee exemption from $100,000 to $147,414, a commitment to periodically reviewing and updating the threshold following a notice-and-comment period, and allowing employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to ten percent of the standard salary level. Notably unchanged by the proposed Rule is the job duties test that is used to determine the applicability of the white-collar exemptions and is often the source of costly litigation for employers.
The proposed Rule has been sent to the Federal Register for publication. Once published — which the Department of Labor estimates will be in January of 2020 — the proposed Rule will become final. Given the history and controversy surrounding the proposed Rule, we can expect litigation to ensue. For now, employers should consider how their current compensation program may be impacted by the newly proposed salary threshold.
Please feel free to contact our Labor & Employment Group with any questions about the proposed Rule and what it means for your business.