DOL Issues Proposed New Rule on Overtime Salary Basis Test and Highly Compensated Employees

April 23, 2019

Several years after efforts stalled under President Obama, the United States Department of Labor has now proposed new regulations increasing the “salary test” for determining which employees may be “exempt” from the benefits of overtime pay under the Fair Labor Standards Act.

Under current federal law, all employees must be paid overtime if they work more than 40 hours per week unless they are “exempt” from overtime pay requirements under the FLSA. To determine who may be “exempt”, one must apply both a “duties test” and a “salary test”. The “duties test” has been relatively unchanged for years (to allow bona fide executives, professionals, administrative, outside sales and other employees to be exempted from FLSA protections). The “salary test” has been the subject of substantial debate, as the salary level to determine exempt status under the “salary test” has not changed since 2004. Currently, employees with a salary equaling $455 per week ($23,660 annually) or more, assuming they also have duties that match those described under the FLSA’s “duties test”, are “exempt” from the requirements for overtime pay under the FLSA.

On March 7, 2019, the DOL issued a Notice of Proposed Rulemaking, which proposes to increase the annual salary level for the “salary test” to determine whether an employee may be exempt from overtime protection under the FLSA. According to the Fact Sheet, the annual exempt salary level will be increased to $679 per week, which is the equivalent of $35,308 per year. The proposed rule does NOT change the “duties test” for determining what type of worker may be exempt from the overtime requirements under the FLSA.

You may recall that the Obama administration put in place new regulations increasing this salary threshold to $47,476 annually, but those changes were blocked by a federal judge in November 2016. At that time, the DOL estimated that the new rules would extend overtime eligibility to approximately 4.2 million new employees. Under the newly-proposed rule, the DOL estimates that it would extend overtime eligibility to more than a million employees.

Whether intended or not, the newly-proposed salary increase is almost exactly one-half the size of the increase proposed by the Obama administration. Before it becomes effective, the new rule must proceed through a notice and comment period prior to the DOL finalizing the rule. Only then may the DOL set an effective date for its enforcement.

The proposed rule also increases the total annual compensation requirement to exempt “highly compensated employees” to $147,414 annually, up from the current level of $100,000 annually for such employees.

Employers should monitor developments with the DOL’s proposed Rule. They may also wish to reach out to industry groups and/or legal counsel to consider the need for and substance of public comment. The Rules for submission can be found here.