Alert: U.S. Department of Labor Unveils Proposal for New FLSA Exemption Threshold

The U.S. Department of Labor has issued a proposal that would make more workers eligible to receive overtime pay under the Fair Labor Standards Act (FLSA).

WHAT YOU NEED TO KNOW

On March 7, 2019, the U.S. Department of Labor issued a proposal to raise to $35,308 the minimum annual salary required for workers to qualify for “white collar exemptions.” This change will mean that any employee paid less in annual salary than $35,308 will become eligible for overtime pay, regardless of the employee’s job duties.

This rule would increase the current salary floor ($23,660 per year) by almost 50%. However, it represents a scaling back of the Obama-era rule, which attempted to increase the floor to $47,000. The Obama administration’s rule never took effect because a federal judge blocked it in 2016. The Trump administration’s proposal will have a more modest effect. About four million additional workers would have become overtime-eligible under the Obama-era rule, while just over one million workers will become overtime-eligible under the Trump administration’s rule.

The DOL has also proposed raising the salary threshold for highly-compensated employees from $100,000 to $146,414, which is about $13,000 higher than the Obama administration’s rule. The effect of this change is more difficult to predict, as workers earning between $100,000 and $146,414 may still be classified as exempt, so long as they meet the longer duties test that applies to workers earning less than $100,000 per year.

Under the DOL’s proposed rule, employers may use nondiscretionary bonuses and incentives to satisfy up to 10% of the salary level, but these payments must be paid annually rather than quarterly.

The DOL has also proposed updating salary levels every four years following notice-and-comment periods before each of the increases.

The proposed rule now enters a notice-and-comment phase, but will likely take effect in January of 2020.

WHAT YOU NEED TO DO

Employers should consult with counsel about preparing themselves and their employees for this impending change. Since many employers will have newly overtime-eligible employees, it is a very good time to audit and re-evaluate the exempt status of employees, consider salary increases to account for the new thresholds, and re-classify any employees who should be classified as non-exempt. These changes must be made carefully and explained effectively to employees. Employers should also analyze how potential salary increases or additional costs will affect their current operations, and consider how the new federal rule may interact with state law exemptions.