On March 7, 2019, the U.S. Department of Labor (DOL) published a Notice of Proposed Rulemaking (NPRM) raising the Fair Labor Standards Act (FLSA) salary test threshold to $35,308 per year ($679 per week) on Thursday.
The figure represents a significant update to the current FLSA regulations where the threshold is at $455 per week or $23,660 annually but is significantly lower than the $47,476 annually ($913 per week) rate pushed by the Obama Administration. The proposed threshold would expand overtime eligibility to more than a million additional U.S. workers, according to the DOL announcement.
No changes were included to the current FLSA duties tests for exemption classification.
The DOL is seeking public comment on periodic review to update the salary threshold suggesting that these thresholds be reviewed every four years. All updates would require a formal notice-and-comment rulemaking.
The DOL’s proposed overtime rule states:
“The Department believes that the proposed update to the standard salary level will maintain the traditional purposes of the salary level test, and will help employers more readily identify exempt employees.”
In response to public comments, the DOL proposes to permit nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the standard salary level test for the executive, administrative, and professional exemptions, provided that such bonuses or payments are paid annually or more frequently. This represents a change from the 2016 proposal which required these types of compensation payments to be made quarterly.
In addition to raising the salary level threshold, the DOL is proposing to raise the salary level threshold for highly compensated employees (HCE).
According to the NPRM, to update the HCE total annual compensation level (set to $100,000 in the 2004 final rule and increased to $134,004 in the 2016 final rule), the Department is adopting the same methodology used in the 2016 final rule. The DOL proposes to set the level equivalent to the 90th percentile of full-time salaried workers nationally, similarly projected forward to 2020, which results in an increase in the annual compensation level to $147,414 per year.
Finally, the FLSA does not preempt stricter state standards. If a state establishes a stricter standard to qualify for exemption from state overtime standards than the corresponding FLSA standard (e.g., higher earnings thresholds or more rigorous duties tests), the stricter standard continues to apply for state law purposes.
The public has 60 days to respond to the proposed rulemaking. Once the comment period closes, DOL will be required to review and consider all comments before finalizing and publishing the regulations. Experts expect this to take several months but do anticipate that DOL will try and finalize the rules at the end of 2019 or early 2020 to avoid any chance that a new administration could repeal or reverse the final rules.