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DOL releases proposed overtime rule with $35,308 salary threshold

By Lisa Milam, J.D.

Under the proposed overtime rule, the salary threshold will rise to $35,308 per year; there are no proposed changes to the job duties test.

The Department of Labor announced late Thursday, March 7, that it has issued its long-awaited Notice of Proposed Rulemaking (NPRM) revising the agency’s white-collar exemption rules (29 CFR 541), raising the salary threshold to qualify as exempt from overtime. According to the DOL, the revised regulation “would make more than a million more American workers eligible for overtime.”

Steep increase in salary threshold. Under the current rule, employees with a salary below $455 per week ($23,660 annually) must be paid overtime if they work more than 40 hours per week, a salary level that was set in 2004. The current NPRM would update the salary threshold using current wage data, projected to January 1, 2020. The result would boost the standard salary level from $455 to $679 per week (equivalent to $35,308 per year). Above this salary level, eligibility for overtime varies based on job duties.

The DOL estimates that 1.1 million currently exempt employees who earn at least $455 per week but less than the proposed standard salary level of $679 per week would become eligible for overtime (without some intervening action by their employers, such as raising their salary).

Not as steep as 2016 rule, though. The increase in the salary threshold, while steep, falls far short of the Obama DOL’s failed 2016 final rule, which more than doubled the floor to $50,440 (and would have made an estimated 4.2 to 5 million more workers eligible for overtime).

However, that rule faced immediate legal challenge, and it was enjoined by a federal court in Texas in 2016. The Fifth Circuit had held the DOL’s appeal of that injunction in abeyance pending further rulemaking, and the 2004 salary level has remained in place.

“Commenters on the RFI and in-person sessions overwhelmingly agreed that the 2004 levels need to be updated,” said Keith Sonderling, Acting Administrator for the Department’s Wage and Hour Division. (The DOL solicited extensive public input on the rule proposal in response to its 2017 Request for Information (RFI), receiving more than 200,000 comments and conducting six in-person listening sessions across the country.

“Highly compensated” hike. The proposal increases the total annual compensation requirement for “highly compensated employees” (HCE) from the currently enforced level of $100,000 to $147,414 per year. Above this salary floor, employees are automatically exempt from overtime.

The Department estimates that an additional 201,100 workers who earn at least $100,000 but less than $147,414 per year, and who meet the minimal HCE duties test but not the standard duties test, would become eligible for overtime under the rule change.

Bonuses will count. “In an attempt to align the regulations better with modern pay practices,” according to the NPRM, employers would be allowed to use nondiscretionary bonuses (such as nondiscretionary incentive bonuses tied to productivity and profitability) and incentive payments (including commissions) that are paid annually or more frequently to satisfy up to 10 percent of the standard salary level. (The 10-percent cap appeared in the 2016 final rule as well.) There is no change to the use of bonuses for purposes of establishing the highly compensated employee salary floor, however.

The DOL is inviting comment on whether the proposed 10 percent cap is appropriate, or if a higher or lower cap is preferable.

No changes to duties test. Like the 2016 rule, the DOL’s NPRM proposes no changes to the duties test, but the NPRM emphasizes that determining exempt status by salary alone, “irrespective of employee duties,” would stand in tension with the FLSA, which empowers the DOL “to define and delimit employees based on the ‘capacity’ in which they are employed.

Salary is a helpful indicator of the capacity in which an employee is employed, especially among lower-paid employees,” the NPRM states. “But it is not ‘capacity’ in and of itself.”

In this regard, the DOL parted ways with the 2016 rule, which many argued would have rendered the duties test largely irrelevant for many workers. The much higher salary threshold would have made salary the overwhelming factor in determining exempt status. The Obama DOL argued the change was necessary in light of the Bush administration’s implementation of a single standard duties test with its 2004 white-collar rule changes. “[T]he salary threshold must play a greater role in protecting overtime-eligible employees,” the DOL said in issuing its 2016 rule, asserting that “it is necessary to set the salary level higher . . . because the salary level must perform more of the screening function previously performed by the long duties test.”

However, the current NPRM states that “[s]uch language is inconsistent with the salary level’s historical purpose of setting a floor for exemption.”

Protections for certain workers remain in place. The NPRM maintains overtime protections for police officers, fire fighters, paramedics, nurses, and laborers, including: non-management production-line employees and non-management employees in maintenance, construction and similar occupations such as carpenters, electricians, mechanics, plumbers, iron workers, craftsmen, operating engineers, longshoremen, and construction workers.

No automatic adjustment. The proposal does not call for automatic adjustments to the salary threshold, but the rule does commit to periodic review to update the salary threshold. The DOL is seeking comments on the NPRM’s language for periodic review. An update would continue to require notice-and-comment rulemaking.

More information. The DOL published a fact sheet on its NPRM as well as a dedicated web page on the overtime rule, including FAQs about the proposed revisions.