DOL Proposes to Expand Overtime Eligibility for White Collar Workers

Under the federal Fair Labor Standards Act (FLSA), employees are entitled to overtime compensation at time and one-half their regular rate of pay for all work hours exceeding 40 in a workweek, but there are exemptions to this requirement. Perhaps the most common overtime exemption is the “white-collar” exemption for bona fide executive, administrative, and professional workers. To currently qualify for one of these three white collar exemptions, employees must be paid on a salary basis of at least $455 per week ($23, 660 annually) and meet certain tests regarding their job duties. This $455 weekly salary level was set in 2004.

On March 7, 2019 the U.S. Department of Labor (DOL) issued a new proposed rule that would, if finalized, update the standard white collar overtime exemptions for executive, administrative, and professional employees, and make more than a million more American workers eligible for FLSA overtime pay. This new proposal is intended to replace a previously announced overtime rule declared invalid by a federal district court in Texas shortly before it was to take effect on December 1, 2016. Key aspects of the DOL’s recent proposal include:

Salary threshold

Raise the minimum salary required for employees to qualify for the white-collar exemptions from $455 per week to $679 per week ($35,308 annually), and allow up to 10% of the salary minimum to be satisfied through nondiscretionary bonuses, incentive payments, and commissions paid annually or more frequently.

Special salary tests

The new salary threshold of $679 per week would not apply to employees in the U.S. territories of Puerto Rico, Guam, the Virgin Islands, and the Commonwealth of the Northern Mariana Islands. In these places, the current weekly salary threshold of $455 would continue to apply. The DOL is also proposing a special salary level of $380 per week in American Samoa.

Highly compensated employees

Currently, highly compensated employees performing office or non-manual work and paid total annual compensation of $100,000 or more are exempt from FLSA overtime if they customarily and regularly perform at least one of the duties of an exempt executive, administrative, or professional employee. The proposed rule would raise the total annual compensation threshold for exemption as a highly compensated employee to $147,414.

Automatic adjustments

Automatic adjustments to the standard salary threshold are not part of the proposal but the DOL has committed to evaluate the propriety of the salary level every four years, including the compensation requirement for highly compensated employees. Any adjustments would be subject to notice-and-comment rulemaking.

Job duties test

The proposal makes no changes to the duties requirements for executive, administrative, and professional employees.

Develop a Plan

The new proposed rule will not take immediate effect. It is subject to a 60-day public comment period which closes on May 21, 2019 and, if approved, may face court challenges. The DOL, however, estimates that the rule will become effective in January 2020. Despite this uncertainty, employers should begin developing a plan to move potentially affected employees from exempt to non-exempt status, but must keep in mind that if an employee works in a state with more protective overtime exemptions than the FLSA, the more employee-friendly state law applies.