On March 7, 2019, the U.S. Department of Labor (DOL) proposed a long-awaited replacement to the Obama administration’s rule increasing the overtime threshold for white collar exemptions under the Fair Labor Standards Act (FLSA). Specifically, the DOL proposed a rule that would increase the minimum salary threshold for overtime eligibility required for workers to qualify for executive, administrative and professional exemptions to $679 per week ($35,308 annualized). 

As background, the FLSA requires employers to pay nonexempt employees an overtime premium at time and one-half the regular rate of pay for all hours worked over 40 hours in a workweek. However, the FLSA provides an exemption from overtime pay for certain employees, including employees in “white collar” (executive, administrative and professional) positions. To qualify for the exemption, employees must meet certain tests regarding their job duties and be paid on a salary basis. It is this threshold salary required for the white-collar exemptions that was modified by the rules. The proposed modified rule did not make any changes to the duties test. 

The $35,308 annualized salary figure newly proposed by the DOL represents an increase of 49% over the current minimum salary level of $455 per week – which is $23,660 on an annual basis. This is a more modest increase than the rule published (but then blocked by a federal court) in 2016, which would have increased the minimum salary amount to $913 per week or just over $47,000 annualized. The DOL?s new proposal does not include any automatic increases in the salary level, which were another controversial aspect of the scrapped 2016 rule. 

Up to ten percent of the $35,308 minimum salary could be satisfied by nondiscretionary bonuses, incentives and commissions. This is an employer-friendly carryover from the 2016 version, as current law does not provide any credit for incentive compensation. 

The new rule would also increase the minimum salary required to be considered a “highly compensated employee” who is subject to a less demanding duties test. That threshold would move to $147,414 annually from the current figure of $100,000. 

The rule is anticipated to make more than a million additional workers eligible for overtime premium pay. That projection is notably less than the anticipated increase of four million under the Obama administration rule that never went into effect. 

Employers have sixty days to submit comments on the proposed rule. The DOL anticipates that the rule will take effect in January 2020, giving employers some time to plan for the increase in salary threshold and overtime-eligible employees. 

Taft’s Employment & Labor Relations team will continue to monitor the rule-making process. In preparation for issuance of a final rule, employers should identify and evaluate affected employees, and then develop a plan to ensure compliance with the new salary threshold.