As you may recall, back in March of 2014, then President Obama directed the Department of Labor (DOL) to address the outdated provisions of the Fair Labor Standard Act to ensure that employees were adequately paid for long hours worked. In 2016, the DOL introduced final rules which increased the salary basis for employees who could qualify for the FLSA "White Collar" exemption administrative, executive, or professional exemptions. Then, the U.S. Department of Justice under President Trump declined to appeal a lower court ruling related to the proposed changes, effectively killing that rule. The DOL went back to the drawing board.
Finally, on March 7, 2019, the DOL announced its long-awaited proposed rule to update the White Collar Exemptions from overtime. The DOL proposed to rescind the 2016 rule and propose a new rule which updated the minimum weekly standard salary level (Salary Basis) and to update the total annual compensation requirement for the "highly compensated employee" test, and other revisions for specific U.S. territories and industries.
White Collar exemptions are covered under Section 13(a)(1) of the FLSA which exempts "bona fide" executive, administrative, professional, outside sales, and computer employees from the minimum wage and overtime requirements. The statute and regulations generally have required three things: (1) the employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed; (2) the amount of salary paid must meet a minimum specified amount; and (3) the employee's job duties must primarily involve executive, administrative, or professional duties as defined by the regulations.
The DOL took what it considers to be a "straightforward approach" and only addressed the Salary Basis for the exemptions and did not address the other components of the exemption test, specifically the "duties" test which is outdated and has frankly been a catalyst for most of the exempt status litigation.
Summary of the New Proposed Rule
Proposed effective date:
January 2020
Proposed Minimum Salary Basis for Executive/Administrative/Professional Exemptions:
The weekly guaranteed Salary Basis will increase from the 2004 weekly salary of $455 to $679 per week. The annual salary raises from $23,660 to $35,308.
New Salary Basis Can Include Certain Non-discretionary Bonuses, Incentive Payments, and Commissions:
The DOL will permit non-discretionary bonuses, incentive pay, and commissions to satisfy up to 10% of standard salary level for white collar exempt employees as long as the bonuses are paid at least on an annual basis, if not more often. This will also include a proposed final "catch-up" payment option within one pay period to bring an employee's compensation up to the required salary basis.
Proposed Increase for Highly Compensated Employees:
The FLSA Highly Compensated exemption applies to certain employees who perform office or non-manual work and receive at least a guaranteed salary of $100,000 under the 2004 rule. Under the new rule, the Highly Compensated exemption will require an annual salary of $147,414. The new rule proposes a process to update this salary level every four years.
No Change to the Duties Tests
: Again, the DOL is avoiding the outdated and ambiguous terms of the duties tests for each of the exemptions and is not proposing any changes.
Caution:
Employers must apply not only the federal overtime rules but, also, the appropriate state overtime rules which may be different. Neither Oregon nor Washington, for example, acknowledge the Highly Compensated Exemption. In addition, the State of Washington legislature is currently considering changes to its overtime rules and regulations which may further impact how employees are treated. Businesses should audit the exempt status of their employees to ensure compliance when the law is finalized.
Conclusion: Of course, this proposed rule
is not final. Keep your eye open for updates from FWW on the final rule and how to best implement any necessary changes.
The DOL anticipates that the changes proposed in its new overtime rule will make over 1 million employees throughout the United States newly eligible for overtime unless employers either raise the guaranteed Salary Basis for the employee or restructure and limit overtime hours. This is a new starting point and employers have time before January 2020 to analyze the final rule and to assess which employees may be impacted by the changes and how to best address the new rules. Do not hesitate to reach out to the Employment Law attorneys at FWW for guidance. We will keep you updated.
