The Department of Labor (DOL) has formally proposed to withdraw Obama-era overtime regulations and replace them with a more modest alternative. If finalized, the proposed regulations would set the salary threshold for the so-called white collar exemptions to the Fair Labor Standards Act (FLSA) at $35,308 a year ($679 a week).
By way of background, the FLSA generally requires employers to pay non-exempt employees "overtime pay" at a rate of one and one-half times their regular rate of pay for any time worked over 40 hours in a week. Certain "white-collar" workers, namely those employed in a "bona fide executive, administrative, or professional capacity," may be exempt from this overtime pay requirement if they meet two "tests": (1) they must have certain exempt job duties, and (2) they must be paid a salary of at least a certain amount. An employee must meet both tests in order to be exempt from the FLSA. Determining whether an employee passes the "duties" test requires a fact-intensive assessment of the employee's work and specific job responsibilities; it is often easier to tell if an employee does not make the required salary. The proposed rule would not change the "duties" portion of the test.
The current salary threshold of $455 per week ($23,660 annually) has not been updated since 2004, despite the passing of a final rule by the Obama-era DOL. The Obama-era rule would have raised the salary threshold to $913 per week ($47,476 annually) starting in 2016; however, a court entered a nationwide injunction temporarily blocking implementation of that rule just days before it was planned to take effect. President Trump took office shortly after that, and DOL announced it would go back to the drawing board on the salary threshold. This new proposal increases the salary threshold from its 2004 level, but does not go as far as the Obama-era regulations did. Furthermore, while the Obama-era regulation included language that would automatically update the salary threshold periodically, the new rule does not provide for automatic adjustments; DOL will need to promulgate a new rule to change the salary threshold again in the future.
The new DOL rule would allow employers to use certain types of bonuses and incentive payments (including commissions) to satisfy up to 10% of the salary requirement. It also proposes increasing the salary threshold required to be considered a "highly compensated employee" from $100,000 per year to $147,414 per year. Highly compensated employees must meet a less stringent duties test to be considered exempt.
DOL's proposal will be open for comment for 60 days. Once the comment period has closed, DOL will review the comments and issue a final rule (including an effective date). Any changes will take effect only after the publication of the final rule. While the exact date that the new rules would become effective is not yet known, DOL hopes they will be implemented in early 2020. For now, the federal salary threshold of $23,660 remains in effect. Note that some states, such as California and New York, have additional laws that already provide for a higher salary threshold than the FLSA.
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