In 2016, we talked a lot about potential changes to the overtime rules that would significantly impact employers. You may remember that ultimately a new salary threshold for the overtime exemption for “white-collar” workers was shut down by a federal court injunction in November of 2016, right before the December 1, 2016 deadline for compliance.
Once again, changes to the overtime exemption are back on the table. On March 7, 2019, the U.S. Department of Labor (DOL) issued a proposed rule that would change the salary thresholds for certain exempt employees.
As a reminder, the Fair Labor Standards Act (FLSA) is a federal law that requires virtually all employers in the United States to pay overtime wages to employees who work more than 40 hours in a workweek. The FLSA contains certain exemptions to its overtime payment requirements. Among these are the “white collar” exemptions for executive, administrative or professional employees and highly compensated employees.
In general, an employee may qualify for a white-collar exemption if he or she satisfies all three of the following:
The “salary basis test” – The employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed.
The “salary level test” – The employee’s salary amount must be at least as much as the standard salary level or the HCE salary level set by the DOL.
The “duties test” – The employee must primarily perform EAP duties. If an employee’s total annual salary is at least as much as the highly-compensated employee salary level, the employee may meet the duties test if he or she performs at least one of the duties of an exempt executive, administrative or professional employee.
For the salary level test, the DOL set the currently enforced amounts in 2004. Under the proposal, the minimum salary level for the “white collar” overtime exemptions would increase from $455 to $679 per week ($35,308 per year). This amount is significantly lower than the minimum weekly salary level that the DOL set in its 2016 final rule that never came to be.
The DOL’s proposal would also increase the salary level for the “highly compensated employee” exemption from $100,000 to $147,414 per year. This is an increase from the 2016 final rule’s annual threshold of $134,004.
These changes will not be effective until after a final rule is issued. Employers are not required to comply with the proposal, but it is important to begin identifying which employees may be affected if the rule becomes final. We will keep you informed of any future developments from the DOL on these proposed overtime changes.
For more information on the proposed rule, see the DOL’s Notice of Proposed Rulemaking: Overtime Update, which includes a Fact Sheet and Frequently Asked Questions.