On March 7, the U.S. Department of Labor (the “DOL”) released its long-awaited proposed “overtime rule” which, if adopted, would increase both the minimum salary threshold for exempt employees and the total annual compensation requirement for “highly compensated employees.”
Generally, in order to be exempt from the overtime pay requirements under the so-called “white collar” exemptions of the Fair Labor Standards Act (the “FLSA”), an employee must: (1) be paid a fixed salary that is not subject to deductions based on the quantity or quality of work the employee performs (“salary basis test”); (2) receive a salary that meets a minimum specified amount (“salary level test”); and (3) perform job duties that primarily involve executive, administrative, or professional duties as defined by the FLSA regulations (“duties test”).
The proposed rule sets the salary level test at $679 per week or $35,308 per year, which is an increase from the current threshold of $24,000. However, it does not change the current “duties test.”
Overview of the Proposed Rule
- Raises the minimum salary threshold for white-collar exemptions from $455 per week to $679 per week (or $35,308 per year).
- Makes no changes to the “duties test” for executive, administrative, and professional employees.
- Raises the total annual compensation requirement for highly compensated employees – which are subject to a minimal duties test – from $100,000 to $147,414.
- Allows employers to use nondiscretionary bonuses and incentive payments (including commissions) paid on an annual or more frequent basis to satisfy up to 10 percent of the new salary level test.
- Permits a “catch-up” payment at the end of the year of up to 10 percent of the total annual salary if the nondiscretionary bonuses and incentive payments that an employee earns are not large enough to satisfy the salary level test.
- Does not change overtime protections for police officers, firefighters, paramedics, nurses, laborers, or non-management employees in maintenance, construction, and similar occupations.
- No “automatic,” periodic adjustments to the salary level test.
Employer Takeaways
Given that the proposed rule may not be adopted in its entirety, employers should not yet make any changes to compensation or pay practices. Instead, employers should begin to analyze which employees may be affected by the proposed rule, craft a preliminary strategy for addressing those employees’ compensation (e.g., through reclassification and changes to overtime practices, changes to timekeeping practices, changes to compensation structure, etc.), and continue to monitor the proposed rule.
If you have questions about the DOL’s overtime rule proposal and how it might impact your business, contact Jonathan Hixon, Esq. of our Employment Litigation and Counseling Group at Hackett Feinberg, P.C. Mr. Hixon’s practices encompasses a wide range of employment counseling and litigation, including wage and hour and discrimination matters.
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