Proposed Rule Released: U. S. Department of Labor White Collar Exemption and Overtime

The Department of Labor (DOL) has issued a new proposed rule that raises the annual minimum salary requirements for white collar overtime exemptions by nearly 50 percent—from $23,660 to $35,308. The annual compensation level for highly compensated employees is also proposed to increase.

To learn more about this, please read the following summary brought to you by our partners at Benefits Advisors Network (BAN):

After a period from 2015 to now with edicts from Presidents (past and present) final overtime rules published, injunction enjoined and invalidated the final published rules, silence, and nationwide listening sessions, the U. S. Department of Labor (DOL) yesterday proposed to rescind the previously published rules and released its new proposed overtime rules with an effective date of January 2020.

In the current proposal, the DOL is seeking to raise the nation’s exempt salary threshold from $455 per week/$23,660 to $679 per week/$35,308 annually.  As a reminder, this is the first time since 2004 that the salary level has been increased.  This time around the proposed regulations do not include any adjustment to the job duties test for these “White Collar” Exemptions.

There are no changes in overtime rules for Police Officers, Fire Fighters, Paramedics, Nurses, Laborers including non-management and production line employees, and non-management in maintenance, construction and similar occupations. However new or “special” salary levels have been proposed for both employees in the motion picture industry and certain U. S. territories.

Additionally, the new regulations will increase the salary threshold for certain Highly Compensated Executives to $147,414 per year.

Employers will still be able to use nondiscretionary bonus, incentive pay and commission to satisfy up to 10% of the standard salary level.  As previously proposed, payment must be paid annually or on a more frequent basis is to be eligible.

Prior regulations had the salary equal to the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, allowing for automatic updates every three years, beginning January 1, 2020.  In the current proposed regulations, there is no automatic adjustment to the salary threshold. Instead it is proposed that a commitment to review with any update requiring notice and comment-making be held.

The overtime salary threshold is one factor in determining if an employee qualifies for overtime pay. There have been no changes to the standard duties test.

The DOL has worked to balance of employers and employers and their special interest groups in as well as the considerations of the rulings of the District Courts decision, stating “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 proposing a new salary level, the Department considered the district court’s conclusion that the salary level set in the 2016 final rule exceeded the Department’s authority by “exclud[ing] so many employees who perform exempt duties” thereby making “salary rather than an employee’s duties determinative” of the applicability of the EAP (added Executive, Administrative, Professional) exemption.

The proposed rules are open for comments and interested parties can submit comments electronically through www.regulations.gov for rulemaking docket RIN 1235-AA20.

While remembering that these are just proposed regulations and not effective until publication of a final rule. There is a proposed effective date of January 2020 and employers should be proactively prepared.

I continue to promote that the following action steps can help employers determine the impact to their organization and encourage that they should be promptly initiated for the proposed effective date of January 2020:

  1. Identify employees currently classified as exempt who will fail the new salary test.
  2. Model potential costs based on possible response (e.g. raise pay to new threshold level, reclassify as nonexempt and pay overtime, or lower pay to offset overtime requirement).
  3. Review job descriptions and tasks of impacted positions to determine if certain exempt tasks and responsibilities may be reassigned or maintained with the current position.
  4. Consider how pay changes or other changes in job assignments may impact your organization (e.g., pay compression with next level, supervisory career paths).
  5. Develop administrative implementation plans including payroll and HRIS systems, in order to ensure compliance and maintain compliance with the three-year automatic update provisions.

It is important to know that misclassifications in these white-collar exemption’s categories happen often. As you apply the newly proposed salary guidelines, also know that salary level is just one criterion for exemption from overtime. The standards duties test can be hard to apply especially for administrative and lower-level management positions. These positions typically carry non-exempt duties and can be hard to classify as exempt duties with the confines of the DOL regulations. Since, these groups consistently average over 40 hours a work week – pushing upwards of 50- 60 hours, employers will need to ensure that the positions are correctly categorized as exempt from the overtime provisions of the FLSA applying both the proposed salary threshold and the standard duties test.

If employers find that certain positions no longer meet the standards set out in the white collar exemption, they are required to either (1) readjust duties and compensations to re-qualify their employee or, (2) the position(s) need to be reclassified as non-exempt and the employee(s) are required to receive overtime pay for all hours worked over 40 hours in a work week.

Job descriptions are an important business tool and should be reviewed annually or when business practices change the tasks of a position. By managing your job description process, you are ensuring that you are compliant with current wage and hour laws and regulations by correctly categorizing and paying employees. Additionally, you are also ensuring that the work performed is aligned with the current needs of the company.

(This was a reproduction of the article, “Proposed Rule Released – U. S. Department of Labor White Collar Exemption and Overtime” as published by BAN on March 8, 2019. The article was written by Bobbi Kloss, Director, Human Capital Management Services).

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Michelle Cammayo

About Michelle Cammayo

Michelle Cammayo has more than 13 years of Employee Benefits experience specializing in all lines of health and welfare benefits. Today, Michelle works closely with clients and partners to provide guidance in areas of the law including ERISA, HIPAA, COBRA, FMLA and PPACA. She also oversees the Compliance Department at Bolton & Company to ensure we are helping our clients manage and eliminate risk with regards to employee benefit compliance.

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