The U.S. Department of Labor (DOL) has finally issued its long-awaited proposed replacement of the Obama administration’s prior and controversial overtime rule.
In a Notice of Proposed Rulemaking made public on March 7, the DOL proposes to increase the minimum salary threshold required for workers to qualify for the Fair Labor Standards Act’s “white collar” exemptions to $35,308 per year, up from the current $23,660.
An additional 1.3 million Americans who work more than 40 hours a week would become eligible for overtime pay under the new rule. This is a more modest expansion than the rule proposed by the Obama administration, which said at the time that its rule would cover about 4-million workers.
The new rule proposal will be subject to a public comment period, and the DOL anticipates that the proposed rule, once finalized, will become effective in 2020.
Under currently enforced law, employees with a salary below $455 per week ($23,660 annually) must be paid overtime premium pay of at least 1.5-times their regular hourly rate of pay if they work more than 40 hours per week and are not exempt from overtime under the Fair Labor Standards Act. This salary level was set in 2004; when first enacted in 1938, the weekly salary level for exemptions was $30.00.
This new proposal would update the salary threshold using current wage data, projected to January 1, 2020. The result would boost the standard salary level from $455 to $679 per week (equivalent to $35,308 per year).
A $35,308 threshold is expected to leave out over half of the workers who would have been granted new or strengthened overtime protections under the Obama’s administration’s higher threshold.
The FLSA exemption from minimum wage and overtime pay requirements applies to executive, administrative, professional, outside sales, and computer employees, based on their actual work duties. These exemptions are often referred to as the FLSA’s “EAP” or “white collar” exemptions.
To be exempt from overtime pay requirements under the FLSA, employees must generally be paid on a salary basis at or above a specified minimum weekly salary level and meet certain requirements related to their primary job duties. Meeting the salary threshold doesn’t automatically make an employee exempt from overtime pay; the employee’s job duties also must primarily involve executive, administrative, or professional duties as defined by the regulations.
The Department also proposes to update the total annual compensation requirement for the “highly compensated employee” test, and to revise the special salary levels for employees in the motion picture industry and in certain U.S. territories, namely, Puerto Rico, the Virgin Islands, Guam, the Commonwealth of the Northern Mariana Islands, and American Samoa.
The prior rule, which was blocked by a federal judge in Texas in 2016, had doubled the minimum salary required to qualify for the exemptions from $23,660.00 annually to just over $47,000.00.
The DOL is also asking for public comment over whether periodic automatic increases to the proposed new threshold should be part of the final rule as they were with the 2016 version.
It is difficult to predict the result of the new rule in the American workplace, since employers may opt to raise salary levels, reorganize workloads, adjust work schedules, or spread work hours in order to avoid payment of overtime pay.
The DOL estimates that an additional 2-million white collar workers who are currently nonexempt because they do not satisfy the EAP duties tests, and currently earn at least $455 per week but less than $679 per week, would have their overtime-eligible status strengthened in 2020 because these employees would then fail both the salary level and duties tests.
In considering the new proposed rule DOL received over 200,000 comments from a broad array of stakeholders, including small business owners, large companies, employer and employee associations, state and local governments, unions, higher education institutions, non-profit organizations, law firms, workers, and other interested members of the public. Several employers expressed concern that raising the standard salary level as high as $913 per week, as previously promulgated, could lead to significant costs for employers.
In announcing the new proposed rule DOL stated that, “The Department believes an update to the salary level tests is long overdue. Long periods between adjustments result in large changes in the salary levels to restore the appropriate relative position of the ‘dividing line’ between nonexempt and potentially exempt workers. The size and unpredictability of these changes in the past are challenging and costly to employers, because there are significant familiarization, adjustment, and managerial costs associated with infrequent updates.”
The proposed new rule, and a 219-page DOL analysis of its anticipated impact, may be read online at https://www.dol.gov/.