After several years and much uncertainty, the Department of Labor (DOL) published a new proposed rule that would raise the annual minimum salary requirement for the Fair Labor Standards Act (FLSA) “white collar” overtime exemption to $35,308, or $679 per week.
The white collar exemption applies to executive, administrative, professional, outside sales and computer employees and excludes them from overtime compensation. The proposed increase reflects an almost 50 percent jump from the current level of $23,660 per year ($455 per week) but doesn’t reach the amounts proposed in a rule released during the Obama administration of $47,476 per year, or $913 per week. That rule was scheduled to take effect December 1, 2016.
Before the Obama rule could take effect, however, a coalition of 21 states filed suit and a federal court judge in Texas granted a preliminary injunction halting enforcement of the rule. The DOL sought interlocutory appeal to the U.S. Court of Appeals, Fifth Circuit, but the January 2017 change in federal administration slowed the process.
In August 2017, the DOL took a step back and released a request for information (RFI), seeking input on how to update the exemption. In addition to receiving more than 200,000 comments, the agency held six “listening sessions” on the issue around the country. Now the agency has released a new proposal, which provides for a salary level that represents a significant increase but that falls below the level that would have been established by the prior proposed rule.
Other key changes in the proposal include a commitment to review the salary threshold for updates every four years using notice and comment rule-making (a change from the Obama administration’s plan for automatic updates every three years) and permission for employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid annually or more frequently to satisfy up to 10 percent of the standard salary requirement.
The proposal would also increase the total annual compensation requirement for “highly compensated employees” from the current $100,000 to $147,414 per year (more than in the Obama-era rule, which set the amount at $134,004). No changes to the duties test were proposed by the DOL.
The agency estimated that 1.1 million currently exempt workers will be affected by the proposed rule, which is open for comment and expected to take effect in January 2020.
To read the DOL’s Notice of Proposed Rulemaking, click here.
Why it matters: Employers should begin to prepare for the change in exemption, reviewing the compensation of white collar employees to identify those who may be impacted by the new rule. Although the amounts have changed in the different proposals, the DOL clearly intends to increase the exemption. “Commenters on the RFI and in-person sessions overwhelmingly agreed that the 2004 levels need to be updated,” Keith Sonderling, acting administrator for the DOL’s Wage and Hour Division, noted in a statement.