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DOL Proposes More Moderate Overtime-Exemption Rule for White-Collar Employees

March 7, 2019 Posted in Legal Updates

On March 7, 2019, the Department of Labor released a proposal to update its overtime-exemption rules for the so-called white-collar employees – those covered by the executive, administrative, and professional exemptions.  Notably, the DOL proposes to update the salary test to require payment of at least $679 per week ($35,308 per year).  The DOL also plans to make several other changes to how it calculates the salary test, but the proposal makes clear that it intends to leave the duties tests for the exemptions unchanged. 

Background – The 2016 Rule Issued by the Obama DOL

The new rule is designed to resolve the uncertainty surrounding the DOL’s plans for the white-collar regulations.  Employers likely remember that the Obama DOL attempted to update the white-collar regulations in 2016. The 2016 rule would have raised the salary test from $23,660 annually to $47,476.  On November 22, 2016, eight days before that rule was to go into effect, the U.S. District Court for the Eastern District of Texas issued an injunction blocking its enforcement, and that same court ultimately granted summary judgment in favor of business groups that had sued to block the rule. 

The DOL appealed that ruling to the Fifth Circuit Court of Appeals, which stayed the appeal based on representations from the DOL (which by then was reporting to a new president) that it intended to revisit the rule.  The Notice of Proposed Rulemaking issued on March 7 is the first indication from the DOL as to how it intends to revamp the rule. 

A New Proposal – The DOL Moderates Its Approach

One of the district court’s concerns about the 2016 rule was the drastic increase in the salary test.  That test had been set at $23,660 annually since the rule was last updated in 2004.  By increasing the test to a threshold of $47,476, the 2016 rule would have prevented several million employees who otherwise qualified for an exemption (based on the duties tests) from being treated as exempt.

The proposed 2019 rule acknowledges this concern by setting a more conservative salary threshold.  Rather than setting the salary threshold at 40% of the national average earnings for full-time salaried workers, the department is returning to the methodology used in 2004: setting the wage at 20% of the average earnings for full-time workers in the lowest-wage region of the country (the South) and the lowest-wage sector (retail).  This resulted in a proposed salary threshold of $679 per week ($35,308 annually).

The department also considered whether it should include some form of automatic indexing in the rule.  The 2016 rule had adopted a rule that would have required an automatic reset of the salary threshold every three years using a predefined formula.  In the 2019 rule, the DOL is proposing to scrap that approach in favor of an actual review by the department every four years, followed by a notice-and-comment rulemaking process that would allow interested parties to voice their opinions.  The DOL believes this approach will give it more flexibility to deal with unforeseen economic conditions, while generally producing more regular and less disruptive updates to the salary threshold.

Other important updates to the rule include the following:

  • A boost to the compensation required to meet the “highly-compensated employee” exception to the white-collar exemption duties tests, such that the threshold will move from $100,000 to $147,414 (of which at least $679 per week must be paid on a salary basis).
  • A provision that retains the feature in the 2016 rule that would have allowed employers to satisfy up to 10% of the applicable salary threshold through payment of nondiscretionary bonuses or incentive compensation, provided that such bonuses or payments are paid annually or more frequently.
  • Updates to special salary thresholds for Puerto Rico, certain U.S. territories, and employees in the motion picture production industry.

Next Steps

The DOL has already engaged in several listening sessions and sifted through thousands of comments to get this far.  But as part of the administrative process required for notice-and-comment rulemaking, the proposed rule will now be opened up for a formal period of public comment, which will end 60 days after the proposed rule is published in the Federal Register. Those formal comments will then be considered and any necessary revisions will be incorporated into a Final Rule, which will then be released with an announcement as to when it will go into effect.  The Notice of Proposed Rulemaking suggests that DOL is targeting a January 2020 date for the Final Rule to go into effect.

To obtain a full copy of the Notice of Proposed Rulemaking as well as instructions on submitting proposed comments, go to the following page on DOL’s website: https://www.dol.gov/whd/overtime/overtime2019-nprm.pdf

If you would like to have a more in-depth discussion on the proposed rule or its likely effect on your employees’ duties and salaries, please contact us at your convenience.

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