DOL's New Overtime Rule Sets FLSA Exemption Threshold at $35,308 Annual Salary

On March 7, 2019, the U.S. Department of Labor unveiled its Notice of Proposed Rulemaking (“NPRM”) recommending a scaled-back compromise to a controversial 2016 Obama-era overtime rule. The 2016 rule dramatically increased the minimum salary threshold for the Fair Labor Standards Act’s (“FLSA’s”) exemptions for highly compensated employees as well as “white-collar” executive, administrative, and professional employees.

The FLSA imposes federal minimum wage and overtime requirements for all non-exempt employees whose employers are covered by the Act. To qualify for a white-collar exemption, an employee must not only perform specific job duties, but meet a minimum weekly pay threshold of $455 per week (totaling $23,660 annually). Highly compensated employees who are more likely to qualify for an exemption without a stringent review of their job duties must be paid at least $100,000 annually. These requirements were last increased in 2004.

The 2016 Obama-era rule attempted to double the existing salary threshold for white-collar workers, setting the minimum weekly salary threshold at $913 per week (totaling $47,000 annually). For highly compensated employees, the 2016 rule proposed an annual compensation threshold of $134,004. The rule also imposed automatic increases to each threshold without providing public notice and comment periods.

That rule was ultimately blocked by a federal judge in Texas before it took effect on December 1, 2016, leaving the 2004 thresholds in place. (For more information about this, read our prior post here.) The decision was appealed to the Fifth Circuit Court of Appeals. In November 2017, the appeal was held in abeyance pending further DOL rulemaking regarding a revised salary threshold.

As a result, many turned their attention to the Trump administration, asking not if, but when the DOL might propose a rollback of the 2016 rule, how far the new rule would go, and if the DOL would be able to pass the rule in time to take effect before the 2020 election.

The DOL tentatively answered those questions when it published its 219-page NPRM on Thursday, March 7, 2019.

In short, the main takeaways from this new proposal include:

1. The new EAP/white-collar exemption threshold is $679 per week (amounting to $35,308 per year), striking the middle ground between the 2004 and 2016 levels;
2. This threshold will increase every four years, but only following notice and public comment periods;
3. The threshold for highly compensated employees is now $147,414 annually – over $13,000 higher than the 2016 rule;
4. Employers may count certain nondiscretionary bonuses and incentive payments, like commissions, for up to 10% of a worker’s salary; and
5. No changes to the “duties” tests.

If finalized, the DOL estimates that over one million currently exempt workers, under the 2004 rule, will either be reclassified as non-exempt or receive an increase in pay meeting the new thresholds. Many companies have already reviewed their existing exemption classifications using the Obama-era rule and analyzed whether they will reclassify affected workers as non-exempt or simply increase salaries to maintain the exemptions. If the new rule becomes final, employers must perform similar analyses using the new thresholds.

Nevertheless, the Trump administration rule is far from final. In addition to the public comment period, this rule, like its predecessor, could face various legal challenges before it takes effect in January 2020.

Those who wish to comment on the rule may do so electronically at www.regulations.gov, in the rulemaking docket RIN 1235-AA20. The public will have 60 days to comment once the rule is published in the federal register.

If you haven’t done so already, please subscribe to these alerts below and share with others who may be affected by these new rules. Otherwise, please contact one of our employment attorneys for assistance with any questions about the FLSA’s requirements or any other compliance matters. Stites & Harbison assists clients of all sizes, including publicly traded corporations, privately held companies, small businesses, and non-profit organizations alike.