On March 7, the U.S. Department of Labor (DOL) announced its long-awaited Notice of Proposed Rulemaking to increase the salary threshold for the so-called “white collar exemptions” from the Fair Labor Standards Act’s overtime pay requirements. The proposed rule would raise the required salary level substantially for executive, administrative, and professional employee exemptions from $455 per week ($23,660 per year) to $679 per week ($35,308 per year). According to the DOL, more than one million additional American workers will become eligible for overtime compensation based on this change. The rule does not adjust the duties’ tests for the white collar exemptions.
The DOL’s new proposed rule represents a more modest increase to the salary threshold than the DOL’s last proposal. Employers will recall that on May 23, 2016, the DOL published its final rule that more than doubled the salary threshold for exempt workers to $913 per week ($47,476 per year). But that rule was enjoined from implementation by the U.S. District Court for the Eastern District of Texas on November 22, 2016, and later invalidated by the court on August 31, 2017. The Fifth Circuit is currently holding an appeal of the district court’s decision in abeyance.
DOL reports that the proposed $679 weekly salary threshold represents the projected 20th percentile of earnings of full-time salaried workers in the lowest paid census region and retail sector. This was the same methodology it used to establish the current $455 per week threshold, but it based the new figure on current data and projections into January 2020 when the rule is scheduled to take effect.
The rule proposes separate salary levels for workers in Puerto Rico, Guam, the Virgin Islands, the Commonwealth of the Northern Mariana Islands ($455/week), and American Samoa ($380/week), and sets a higher base rate for employees in the motion picture industry ($1036/week).
Additionally, the DOL proposes a going-forward process to review and adjust the salary threshold every four years by notice of proposed rulemaking (with accompanying comment periods). This approach, too, diverges from DOL’s 2016 rule, which would have featured automatic updates to the salary thresholds.
Employers may want to take note of one particular feature of the proposed rule. The current proposed rule expressly allows for the inclusion of certain nondiscretionary bonuses and incentive payments – like nondiscretionary bonuses tied to productivity and profitability – towards up to 10 percent of the standard salary level. To count for this purpose, these bonuses must be paid at least annually (not quarterly, as the 2016 rule had required).
Finally, the new proposed rule also adjusts the salary threshold for “highly compensated employees,” from $100,000 to $147,414. And for highly compensated employees, as well as situations where employers plan to use nondiscretionary bonuses and incentive payments to meet the minimum salary threshold, the proposed rule allows employers to make year-end “catch up” payments to bring employees to the required salary levels for exempt status.
Members of the public can submit comments about the proposed rule electronically at www.regulations.gov, in the rulemaking docket RIN 1235-AA20. After the rule is published in the Federal Register, the public will have 60 days to submit comments.