The U.S. Department of Labor (“DOL”) is one step closer to publishing final regulations on the FLSA’s overtime exemptions for “white collar” workers in executive, administrative, and professional positions.
The DOL published its Notice of Proposed Rulemaking (“NPRM”) on March 7, 2019, outlining its proposed final rule and inviting public comment. That comment period is now closed, and the next step is the anticipated publishing of the final regulations. If they become final, it is expected that the new regulations would go into effect sometime in calendar year 2020.
The proposed new regulations, like the failed 2016 proposed regulations, propose to update the so-called “white collar” exemptions applicable to executive, administrative, and professional employees. However, the 2019 NPRM proposes more modest changes than the 2016 version. The 2019 NPRM, if it becomes final, will increase the minimum salary level required for EAP employees to be exempt from overtime, and will increase the annual compensation level required for employees to be exempt as highly compensated employees. No exception is made for small businesses. Easing the compliance burden, the 2019 NPRM does not propose automatic cost of living increases for employers to keep track of, and will not change the duties tests that are currently in effect for the EAP exemptions.
As an executive summary, the key provisions of the 2019 NPRM are the following:
- The minimum salary level for the exemptions will increase to $679 per week or $35,308 per year (which is a significant increase from the current level set in 2004 of $455 per week or $23,660 per year).
- For highly compensated employees, the total annual compensation level will increase to $147,414 per year (up from the current level of $100,000 per year).
- To meet the salary level, the proposed regulations will permit employers to include non-discretionary bonuses and incentive payments, including commissions, to satisfy up to ten percent (10%) of the salary level requirement.
- The DOL will review these levels periodically, but no automatic increases are proposed as part of the 2019 NPRM.
As businesses begin planning their budgets and thinking about salary increases for workers next year, they should keep an eye on the anticipated new regulations. The DOL expects that the final rule will result in over one million workers that were formerly classified as exempt from overtime becoming eligible for overtime pay, unless their employers make a change to their pay or duties. So, as a practical matter, the proposed regulations will mean that fewer employees will meet the requirements to be exempt from overtime, or that employers must pay higher salaries in order for many employees to remain exempt under the FLSA.
Now is the time for businesses to develop a plan to deal with the upcoming changes, which will likely take effect in 2020. The DOL’s helpful Fact Sheet on the NPRM can be found here, and its FAQs on the NPRM can be found here.