A year and a half after the U.S. Department of Labor formally requested public input on the topic, the DOL has finally published its proposed changes to the salary threshold for the overtime exemptions under the Fair Labor Standards Act. The agency proposes to increase that requirement by 50%, from $455/week ($23,660/year) to $679/week ($35,308/year).
The proposed rule change would also increase the salary threshold for the “highly-compensated employee” exemption, from $100,000/year to $147,414/year, and would allow employers to use non-discretionary bonuses and incentive payments (including commissions) to account for up to 10% of the required salary.
Finally, the proposal would require the DOL to periodically review the salary threshold, something the DOL announced it intends to do every four years, but the agency would not be allowed to make future changes to the threshold without going through the formal notice-and-comment rulemaking process.
The proposed increase is substantially lower than the change that was adopted by the DOL under President Obama, which would have more than doubled the threshold – to $913/week ($47,476). As you may recall from our previous blog posts on this topic, that rule change was halted by a federal court in Texas in November 2016. The DOL filed an appeal of the court’s decision, but after President Trump was sworn in, the DOL delayed filing a brief in support of the change and ultimately announced that it would not defend the new rule and would instead seek public input.
In late July 2017, the DOL filed a Request for Information in the Federal Register, requesting public comment on a number of questions, including whether adjusting the salary level for inflation would be an appropriate basis or if some other method would be appropriate; whether the regulations should contain multiple salary levels and if so, how those should be set (for example, by employer size or census region); whether different salary thresholds should be set for each exemption and what impact that would have on employers and employees; whether the salary threshold set by the Obama-era administration eclipsed the duties set forth in the duties tests; and to what extent employers raised salaries in 2016 to comply with the Obama-era rule.
In response to that RFI, the DOL received more than 200,000 comments and held six public listening sessions across the country. The rule change announced yesterday is the result of that feedback.
In its published notice, the DOL explained its belief that the Obama-era proposal “untethered the salary level test from its historical justification: setting a dividing line between nonexempt and potentially exempt employees by screening out from exemption a swath of employees who are unlikely to be bona fide executives, administrators, or professionals because of the compensation level.”
To address that concern, the DOL used the same method that was used back in 2004, the last time the salary threshold was updated, to calculate the proposed increase. This method sets the standard salary threshold at the 20th percentile of earnings of all full-time salaried workers in the lowest-wage census region (the South) and in the retail sector.
The highly-compensated employee threshold, by contrast, was set at the 90th percentile of all full-time salaried employees nationwide. In both cases, the DOL used 2017 data, and projected that data forward to January 2020, when the rule is expected to go into effect. The DOL noted that the change is expected to make 1.1 million employees newly-eligible for overtime barring further action by their employers.
Skoler Abbott will be discussing this development at our upcoming Labor and Employment Law Conference on May 21, 2019. Click here for more details.
In the meantime, interested parties have 60 days to submit comments to the proposed rule change through the Federal eRulemaking Portal at www.regulations.gov or by regular mail directed to Melissa Smith, Director of the Division of Regulations, Legislation, and Interpretation, Wage and Hour Division, U.S. Department of Labor, Room S-3502, 200 Constitution Avenue, N.W., Washington, D.C. 20210. See the DOL’s published notice at https://www.dol.gov/
whd/overtime/overtime2019-nprm.pdf, for more detailed instructions.