The Department of Labor (DOL) has announced a proposed rule that would change the amount of the salary level test under the “white collar” exemptions. The new rule is meant to replace the rule published in 2016, which raised the level from $455 to $913 a week. That rule was subsequently found invalid by a Federal District Court. The new proposed rule would set the salary level at $679 per week. The proposed rule would allow 10% of that salary to be made up of non-discretionary bonuses and incentive payments.
In general, the Fair Labor Standards Act (FLSA) requires covered employers to pay employees, working more than 40 hours in a workweek, an overtime premium. There are a number of exceptions to this rule including those commonly referred to as the “white collar” exemptions. To meet a white collar exemption three things are required. First, the “duties test,” under which an employee’s job must primarily involve executive, administrative, professional, outside sales or computer duties, must be met. Second, the employee must be paid a predetermined fixed salary not subject to reduction for such things as hours worked in the workweek, the “salary basis test.” Third, the amount of the salary must meet a certain amount under the “salary level test.” This third test is impacted by the proposed rule.
Additionally, the 2004 version of the rule incorporated a Highly Compensated Employee (HCE) test. This combined a modified duties test with a higher level of compensation, at the time $100,000, for an employee to be considered exempt. The proposed rule would set the level of compensation for the HCE test at $147,414.
The DOL estimates the change to $679 a week will make 1.1 million additional employees eligible for overtime. It also estimates the HCE change will make 201,100 employees, who are currently exempt, eligible for overtime.
Unlike the 2016 rule, no automatic adjustment to the salary level is incorporated in the proposed rule. Instead, the DOL announced its intention to update the earnings levels at 4 year intervals. Changes would be subject to normal rule making procedures, including notice and a period for comments.
This is not a final rule. The proposed rule appeared in a Notice of Proposed Rule Making the first part of March, 2019. It was published in the Federal Register on March 22, 2019. The publication initiates a public comment period which closes on May 21, 2019. The DOL will consider comments in developing the final rule. The DOL anticipates the new rule will be effective in 2020.