On March 7, 2019, the U. S. Department of Labor (DOL) issued proposed regulations under the Fair Labor Standards Act (FLSA), which would raise the annual minimum salary threshold for white collar workers to not have to be paid overtime, from $23,660 ($455 per week) to $35,308 ($679 per week). Executive, administrative, and professional exempt employees earning less will need to be paid overtime when working more than 40 hours per workweek. Employers have 60 days to comment to the DOL, with the final rule to be published after the comment period. It is anticipated that the rule would become effective in January 2020.

Revising the Obama-era Rule

Although the new threshold would be a significant increase, it is substantially lower than the threshold of $47,476 ($913 per week) that was proposed under the Obama administration. The latter was blocked when fierce business opposition led to a Texas federal court’s issuing a permanent injunction. The Trump administration announced in 2017 that it was reviewing the Obama rule, with Secretary of Labor Alex Acosta acknowledging that inflation since 2004, when the current level was last set, had raised employees’ costs, but cautioning that too large an increase could create “stress on employers.” In response, the DOL sought feedback from the business community and workers’ groups, on options for revising the Obama proposal. Many respondents, encompassing both constituencies, called for upward adjustment from the 2004 threshold.

Highly Compensated Employees

Under the proposed DOL regulation, the annual compensation for “highly compensated employees” exemption would also increase, from $100,000 to $147,414. All previously required highly compensated employees’ duties remain the same for the exemption to apply.

Non-discretionary Compensation

The proposed regulation would also allow for the use of non-discretionary compensation, such as bonuses and commissions, to satisfy up to 10% of the annual salary threshold. Under the 10% rule, for an employee to qualify as exempt, an employer would need to compensate the employee at a “standard salary level” of $611.10 per week, which is 90 percent of the proposed salary threshold of $679 per week. If an exempt employee’s compensation fell short of that threshold, employers could make a final “catch-up” payment within one pay period after the end of a 52-week period. Unlike the Obama administration proposal, the threshold-satisfying portion of the non-discretionary compensation could be paid annually rather than quarterly. Finally, the DOL proposal would allow for updating salary levels every four years, but only after a notice-and-comment period.

Duties Test

There are no proposed changes to the “duties test” portion of the rule, even though many employers had complained that ambiguities associated with the duties test create uncertainty in identifying individuals who may be exempt from overtime pay.

U.S. Territories

The proposed salary threshold does not apply to employers in Puerto Rico, the Virgin Islands, Guam, or the Commonwealth of the Northern Mariana Islands, which means that the current salary threshold of $455 will continue to apply.

Conclusion

What should employers do now? Experience indicates that there might be legal challenges to the proposed rule, especially due to the lack of change to the duties test.

Nevertheless, this is the time to evaluate positions and salary rates, including bonuses, to assess the impact the proposed rule could have on your business. This would involve the following:

1. Revisit employee classifications to begin identifying which employees would be affected by the new DOL rule.
2. Review job descriptions, focusing on duties, to determine whether additional tasks should be reassigned to meet the exemption status.
3. Evaluate the overall financial implications of the change in light of the current job market, and decide whether it is preferable to raise salaries to meet the new threshold or to pay overtime to some or all presently exempt employees.

We are here to help answer specific questions and offer advice on your options. Feel free to contact any of our Labor & Employment attorneys.

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