Here We Go Again: Proposed Changes to FLSA White Collar Exemptions
Many employers may recall the commotion that ensued when the Obama administration issued a final rule on May 23, 2016 that substantially increased the standard salary level for workers exempt under the executive, administrative, professional, outside sales and computer employees exemption of the federal Fair Labor Standards Act. The uproar resulted in a lawsuit in the United States District Court for the Eastern District of Texas, which held the rule invalid. As a result, the standard salary level has remained at the same level set in 2004.
On March 7, 2019, the Department of Labor ("DOL") announced a proposed rule that attempts to find a middle ground between the 2004 levels and the tumultuous 2016 levels in an effort to reflect increases in wages and salaries.
Under the regulations in effect since 2004, employees who earn a salary of less than $455/week ($23,660 annually) must be paid overtime for hours worked in excess of 40/week. Employees making more than $455/week are eligible to be exempt from the overtime requirement in some circumstances if they can also satisfy a secondary test based on job duties. The proposed rule would increase the salary level for workers eligible for overtime from $455/week to $679/week ($35,308 annually) and raise the total annual compensation standard required to exempt highly compensated employees from $100,000/year to $147,414/year.
In addition to the increased compensation levels, the proposed rule would also allow employers to use nondiscretionary bonuses and incentive payments (e.g. commissions) to satisfy up to 10 percent of the standard salary level if those payments are made on an annual or more frequent basis. The proposed rule further creates a periodic review process in order to revisit and update the compensation levels with traditional notice-and-comment rulemaking.
The proposed rule is now open for comment. A final rule is expected to be published later this year with an anticipated effective date of January 1, 2020. The DOL anticipates that if finalized, 1.3 million exempt employees will become non-exempt under this proposal. We will continue to monitor this proposed rule and anticipate further updates as necessary throughout the year. For questions related to wage and hour compliance or other employment law matters, please contact a member of the Koley Jessen Employment, Labor and Benefits Practice Group.