In March 2019, the U.S. Department of Labor (DOL) issued a proposed rule that would increase the salary thresholds that “white collar” and “highly compensated” employees must be paid to qualify as exempt from overtime requirements under the Fair Labor Standards Act (FLSA). Sound familiar? The DOL previously attempted to modify the salary thresholds in 2016, but was ultimately blocked by a permanent injunction in 2017. After requesting information for a new rule in 2017, the DOL has decided to try again.
Under the current rules, workers who perform certain “white collar” duties and earn at least $455 a week (or $23,660 a year) are exempt from overtime requirements. Further, employees earning at least $100,000 a year, including at least a $455 weekly salary, may be considered exempt from overtime requirements as “highly compensated” employees without having to satisfy each element of the stringent white collar duties tests (i.e., they must primarily perform office or non-manual work and regularly perform at least one of the exempt duties of the other white collar exemptions.)
According to studies performed under the Obama administration, only 8 percent of full-time salaried workers fall below the current white collar salary threshold. Further, the current white collar salary threshold falls below the poverty threshold for a family of four.
The 2016 Attempt at Change
Early in 2014, President Obama directed the DOL to update the FLSA regulations defining which white collar workers are protected by minimum wage and overtime standards. In May 2016, the DOL issued a final rule that more than doubled the salary threshold for the white collar exemptions, increasing it from the current $455 a week (or $23,660 a year) to $913 a week (or $47,476 a year). Thus, it would have extended overtime entitlement to millions of previously exempted workers.
Additionally, the 2016 rule would have raised the salary threshold for the highly compensated employee exemption from $100,000 to $122,148.
In response, 21 states filed a lawsuit seeking to block the implementation of the initial rule, challenging the process by which it was promulgated. In November 2016, a federal court in Texas granted a nationwide temporary injunction, preventing the rule from taking effect. A permanent injunction was issued in August 2017.
The New 2019 Proposed Rule
The new proposed rule does not make any changes to the white collar duties tests. However, similar to its 2016 rule, the DOL’s newly proposed rule significantly increases the minimum salary threshold. This time, the proposed rule raises the threshold to $679 a week (or $35,308 a year). Thus, if implemented, workers earning a salary of less than $35,308 a year will be entitled to overtime regardless of whether they meet the duties tests. While this increase is not as drastic as the amount issued in 2016, it would still extend overtime entitlement to an estimated one million additional workers.
Further, the proposed rule substantially increases the salary threshold for the highly compensated employee exemption, raising it from $100,000 to $147,414. This threshold is significantly larger than the threshold proposed in the 2016 rule, and is the equivalent of the 90th percentile of full-time salaried workers nationwide. Thus, if implemented, employees making less than $147,414 a year, including at least a $679 weekly salary, will be required to also meet a white collar duties test in order to remain exempt from overtime requirements.
Additionally, under the new proposed rule, employers would be able to use certain non-discretionary bonuses and incentive payments, which are paid annually or on a more frequent basis, to satisfy up to 10 percent of the salary threshold.
What Happens Next?
The newly proposed rule will not take effect until a final rule is published, which the DOL currently anticipates will be in January 2020 at the earliest. In the meantime, the DOL is accepting public comment on the proposed rule until approximately mid-May 2019.
Employers should work with their legal counsel to evaluate their workforces and determine what changes, if any, may be necessary should the newly proposed rule become final. Job descriptions and employee classifications may need to be revised; positions may need to be restructured; budgets may need to be reevaluated to accommodate any increased costs; and policies clearly restricting overtime may need to be implemented.
Lindsay Raymond specializes in employment law, represents employers in all aspects of employment-related matters, and defends employers in employment litigation matters. She can be reached at (231) 714-0161 or lraymond@darlawyers.com.
This article was featured in the April 2019 issue of the Traverse City Business News.