Hunton Employment & Labor Perspectives

The U.S. Department of Labor on Thursday issued its new proposal to amend the salary threshold for employees to qualify for the Fair Labor Standards Act’s white-collar exemptions from overtime pay requirements to $35,308 per year ($679 per week).

The much-anticipated proposed rule would raise the minimum annual salary requirement for the white-collar exemption to the Fair Labor Standards Act from $23,600, a level that has been in place since 2004.  The DOL estimates that the rule change will make just more than one million new employees eligible to earn overtime, assuming that employers do not increase employees’ salary levels to meet or exceed the new level.

The DOL’s proposed salary level was set using the same methodology that the DOL used to establish the 2004 salary level, only applied to updated salary data.  That method sets the salary level at 20% of the average salary earned by workers in the country’s lowest salary region (the South) and in the retail industry.  The proposed rule would require that the Department revisit the salary level every four years through notice-and-comment rulemaking, rather than providing for an automatic updating process.

While the new rule raises the previously applicable threshold, it is substantially lower than the $47,476 threshold that the Obama administration proposed in 2016.  A federal court in Texas blocked enforcement of that rule shortly before it was scheduled to take effect.  Unlike the newly proposed rule, the Obama proposal calculated the salary basis based on national rather than regional average salary data, and it applied a higher percentage to that data.  The 2016 Obama rule also required automatic increases over time (rather than through notice-and-comment rulemaking), which was one of the reasons for the court’s decision to block its enforcement.

The newly proposed rule would permit employers to count nondiscretionary bonuses and incentive payments like commissions to satisfy up to 10% of the $679 per week salary requirement.  So, even if an employee’s weekly salary was less than $679 per week, she would qualify for the exemption if she received bonuses that increased her weekly average to that level.  The proposed rule would also allow employers to make a yearly catch-up payment if an employee’s bonuses or other incentives over the course of a year were insufficient to reach the salary baseline.

The proposed rule is subject to a 60-day notice and comment period, after which time the Department will consider the comments and decide whether to enact a final rule.  The Department says that it is particularly interested in commenters’ views about alternative suggestions for calculating the salary level and input regarding whether the 10% cap on nondiscretionary bonuses and incentives should be adjusted.  The DOL said it expects the new rule to take effect in January 2020.