Executive Summary: The U.S. Department of Labor (DOL) recently issued its proposed overtime regulations to replace the Obama administration’s (enjoined) overtime rule. The DOL raised the minimum salary threshold requirement for workers to qualify for the Fair Labor Standards Act’s white collar exemptions to $35,308 per year (or $679 per week). The proposed rule raises the threshold from $23,660 per year (or $455 per week). For highly compensated employees, the DOL raised the salary threshold from $100,000 to $134,000. The proposed regulation would make more than one million additional workers eligible for overtime. The DOL also proposed regular increases to the threshold every four years following public comment.
The Obama administration had promulgated a rule to increase the minimum salary for exempt employees to $47,892 annually (or $921 per week). That administration’s rule also increased the salary threshold for highly compensated employees to $147,414. The Obama administration’s rule was enjoined by Judge Amos Mazzant in the Eastern District of Texas in November of 2016, and an appeal of that ruling is being held in abeyance by the U.S. Court of Appeals for the Fifth Circuit.
The DOL, in an attempt to better align the regulations with modern pay practices, also proposed to allow employers to count nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to ten percent of the standard salary test, provided such bonuses are paid annually or more frequently. The DOL did not propose any changes to the standard duties test. The DOL stated that it believes the proposed update to the standard salary level will maintain the traditional purposes of the salary level test and will help employers more readily identify exempt employees.
Bottom Line for Employers: In light of the potentially significant impact of the rule on most companies, employers should take steps now to ensure they will comply with the final rule when it takes effect. Employers should also examine state requirements, which in some cases employ different thresholds than those required under federal law.