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Department of Labor Establishes New Salary Threshold for Overtime Exemptions

Alert
03.08.2019

The Department of Labor (DOL) announced yesterday, in a proposed rule anticipated to take effect in January 2020, that it intends to increase the salary threshold for "white collar" exemptions under the Fair Labor Standards Act from the current level of $23,660 to $35,308.

In many ways, the DOL's new proposed rule represents a compromise. The new salary threshold (the minimum salary necessary to qualify for one of several white collar exemptions to the FLSA's overtime pay requirements) is substantially higher than the current level; however, it is a much lower threshold than the one proposed by the Obama administration ($47,476), which was blocked by a federal court in Texas in 2016. As in the previously proposed rule, up to 10 percent of the salary requirement may be met through non-discretionary bonus or commission payments, which must be paid at least annually.

Another feature of the new proposed rule is an increase to the threshold for "highly compensated" employees from $100,000 to $147,414. The new proposed rule also provides for periodic increases to the salary levels every four years, but such increases would not be automatic, and would be made only after public notice and comment periods. 

In addition to the salary level, one of the most debated questions was whether the DOL would revise the current "duties" test. In order to qualify for one of the FLSA's white collar exemptions, an employee must meet the salary threshold and demonstrate that his or her duties are consistent with the duties articulated for the specific exemption. For example, in order to qualify for the administrative exemption, an employee's primary duty must be "the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer's customers;" and the employee's primary duty must include "the exercise of discretion and independent judgment with respect to matters of significance." Although the duties test leaves much room for interpretation and often is difficult to apply to modern day jobs, the duties test remains unchanged by the DOL's proposed rule. 

The Notice of Proposed Rulemaking is subject to a 60-day notice and comment period, during which employers may provide comments on any aspect of the proposed rule. 

Previous litigation over the rule proposed by the Obama administration raised the question of whether the DOL has the authority to tie eligibility for overtime to a specific salary level. It is unknown whether the new proposed rule will prompt additional litigation or congressional action. Employers who may need to make adjustments to their compensation systems based on this new rule (currently anticipated to take effect in January 2020) will want to work closely with their employment law counsel to stay apprised of the latest developments.

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