Department of Labor Releases Proposed Overtime Rule

DOL Proposes Increase to FLSA Exemption Threshold
Contributed by: Jason Tremblay, Saul Ewing Arnstein & Lehr LLP

On March 7, 2019, the U.S. Department of Labor released its long-promised proposed rule raising the minimum salary threshold required for workers to qualify for the Fair Labor Standards Act’s exemption threshold to $35,308 annually.  The new rule would apply to executive, professional, and administrative workers — also known as “white collar” exemptions.

The new threshold is an $11,648 increase from the current threshold of $23,660, but is about $12,000 lower than the approximately $47,000 salary threshold that the Obama administration proposed in 2016.  The Obama administration’s rule was enjoined in November 2016 by a Texas federal judge, and the Trump administration withdrew the government’s appeal which sought to enforce the rule.

The proposed rule includes two other significant provisions.  First, the proposed rule rejected the concept of automatic annual increases to the salary threshold.  Instead, in the proposal’s preamble, it suggests the salary threshold should be revisited every four years and welcomed public comment on the issue.  While there will likely be many comments arguing both for and against automatic increases, it is likely that some version of the final rule will include some form of a regular review of the salary threshold.

Second, the proposed rule increases the salary threshold for “highly compensated” employees from $100,000 to approximately $147,000.  Surprisingly, this was a $13,000 increase from what the Obama administration proposed in 2016.  If this provision of the proposed rule takes effect, employers who rely upon the “highly compensated” employee exemption, and who pay such employees less than $147,000, will need to revisit their exempt status.

The opportunity for public comment is important because it will allow for the DOL to consider the impact on employers during the prior period, as well as the impact moving forward before making any adjustment.

The DOL estimates that implementation of any final rule would begin in January 2020, giving employers ample time to adjust salaries upward or switch employees from salary to hourly.  While it is difficult to predict whether there will be any legal challenges to the proposed rule like in 2016, it is likely that any rule would survive such a challenge based on the current state of the economy, the more modest nature of the increase when compared with the Obama-era rule and the fact that, in coming up with the new salary threshold, the DOL used essentially the same methodology as it did in 2004 (when the salary threshold was last updated).  Additionally, the rule is closely in line with states and municipalities that have raised the minimum wage to $15.00 per hour.  The DOL estimates that the proposed rule would make one million more workers eligible for overtime pay.

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