On Thursday, February 7, 2019, the U.S. Department of Labor (DOL) issued a Notice of Proposed Rulemaking that proposes increasing the threshold at which employers can invoke certain “white collar” exemptions to the Fair Labor Standards Act overtime requirements.
Under the proposed rule, employees earning less than $679 per week ($35,308 per year) would now be entitled to earn overtime of time-and-a-half their regular rate for hours worked beyond 40 hours in a workweek, regardless of their duties. The existing threshold is $455 per week ($23,660 per year).
Additionally, the “highly compensated employee” (HCE) threshold is set to increase from $100,000 to $147,414 per year.
These changes to the overtime rules, which have been in place since 2004, “would make more than a million more American workers eligible for overtime,” according to the DOL.
The proposed rule would also allow employers to satisfy up to 10 percent of the salary requirements applicable to the executive, administrative, and professional exemptions by paying bonuses and incentive payments, as long as they are nondiscretionary and are paid annually or more frequently. The HCE exemption, which has its own rules regarding the inclusion of nondiscretionary pay, is not included in this proposed change.
The DOL also proposes to allow employers to make “catch-up” payments to bring an employee’s compensation up to the required level. Under this change, employers would need to pay exempt executive, administrative, or professional employees 90 percent of the standard salary level (or $611.10 per week) throughout the year, and if the total compensation does not meet the 52-week equivalent of the standard salary level (i.e. $35,308) the employer would have one pay period to make up the shortfall (up to 10 percent of the standard salary level, $3,530.80).
With these new rules, the DOL would also formally rescind the changes it sought to impose in 2016 to the overtime thresholds, which were declared invalid by a U.S. District Federal Court in Texas and have been in limbo pending appeal at the Fifth Circuit. Although the proposed changes reflect a substantial reduction of the standard salary requirement proposed in the failed 2016 rule, which would have doubled the minimum salary for exempt workers from $23,660 to $47,476, the new HCE exemption is $13,410 higher than the 2016 proposal.
Following official publication in the Federal Register, the proposed rule will be open for public comment for a period of 60 days after which a final rule is expected.
More information about the proposed rule can be found here.