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Department of Labor Releases New Proposed Overtime Rule, Sets Minimum Salary at $35,308

The U.S. Department of Labor (DOL) has issued a new proposed rule raising the annual minimum salary requirements for the Fair Labor Standards Act (FLSA) “white collar” overtime exemptions (executive, administrative, and professional). Under the new proposed rule, the salary level for the white collar exemptions will increase to $35,308, or $679 per week.

That is nearly a 50% increase from the current level of $23,660 ($455 per week), but well below the salary level set by the DOL under the Obama Administration, which would have set the salary level at $47,476 ($913 per week). The Obama-era rule was blocked by a permanent injunction issued by a Texas district court judge. The proposed rule rescinds the 2016 Obama rule.

Under the proposed rule, the annual compensation level for “highly compensated employees” also will increase. The current annual compensation level for highly compensated employees will increase from $100,000 to $147,414. That is higher than the level set by the Obama-era rule, which had the annual compensation requirement at $134,004. Highly compensated employees must still perform exempt duties for the exemptions to apply, but the duties test for such employees is easier to satisfy.

Consistent with the Obama-era rule, employers will be permitted to use nondiscretionary compensation, including commissions, to satisfy up to 10% of the new standard salary level. Under the new proposed rule, however, that 10% of compensation may be paid annually, rather than quarterly, as was the case under the Obama-era rule. This gives employers more flexibility in paying exempt employees nondiscretionary bonuses and commissions and satisfying the salary level requirement. The proposed rule also permits a catch-up payment at the end of the year if the nondiscretionary pay is not large enough to satisfy the required salary (no more than 10% of the standard salary level — $3,530.80). For highly compensated employees, the standard salary level ($35,308), in contrast, must be met without including any nondiscretionary pay, although such pay can be included in meeting the annual compensation requirement of $147,414.

The increase to $35,308 was expected in light of previous statements made by Labor Secretary Alexander Acosta following his confirmation.

Notably, the DOL has not proposed any changes to the duties test and has not proposed any automatic increases, although it anticipates updating the salary level every four years through notice-and-comment rulemaking. The Obama-era rule called for automatic increases every three years.

In setting the new proposed salary level, the DOL is using the same methodology used when it increased the salary level to $455 per week in 2004 — using the salary level for the 20th percentile for full-time salaried workers in the lowest census region (the South) and in the retail industry nationwide. It then projected what that rate will be in January 2020, the date it expects the rule to be effective. By contrast, under the Obama-era rule the DOL had selected the 40th percentile for full-time salaried workers. The DOL rejected proposals to set different salary levels for different regions of the country or different levels based on the size of the employer. The DOL estimates that 1.1 million currently exempt workers who earn more than $455 per week, but less than $679, will be affected by the proposed rule. The Obama rule, in comparison, was anticipated to affect 4.2 million workers who otherwise would have satisfied the duties requirements to the exemption.

The new salary levels will not apply to employers in Puerto Rico, the Virgin Islands, Guam, and the Commonwealth of the Northern Mariana Islands. The current salary level of $455 will continue to apply in those locations.

Employers will have 60 days to submit comments to the DOL. A final rule will then be published after those comments have been considered. The DOL anticipates the rule will be effective January 2020.

Employers who currently have exempt white collar workers who earn more than $455 per week, but less than $679, yet satisfy the duties requirements, can comply with the new rule by either increasing the employee’s salary to the new level, limiting hours so employees do not work overtime, or reclassifying employees as non-exempt.

Regardless of what the final DOL rule may include, employers also must consider how the new rule interacts with the corresponding exemptions under the myriad of state laws. Some states do not have overtime laws; others incorporate the FLSA as it stands; others incorporate the FLSA’s overtime provisions, but with higher salary requirements; and others have their own exemptions and salary levels without reference to the FLSA.

Jackson Lewis P.C. © 2020National Law Review, Volume IX, Number 67


About this Author

Jeffrey Brecher, Jackson Lewis, Management Arbitration Lawyer, Labor Litigation Attorney

Jeffrey W. Brecher is a Principal in the Long Island, New York, office of Jackson Lewis, and is Practice Group Leader of the firm's Wage and Hour practice. He has litigated hundreds of cases, defending management at arbitration, before state and federal administrative agencies and at trial.

Mr. Brecher regularly advises clients on compliance with various state and federal laws affecting the workplace, including discrimination and related claims arising under Title VII, Family and Medical Leave Act, Americans with...

Richard Greenberg, Jackson Lewis, workplace grievances lawyer, arbitrations litigation attorney

Richard Greenberg is a Principal in the New York City, New York, office of Jackson Lewis P.C. He advises both unionized and union-free clients on a full-range of labor and employee relations matters.

With respect to traditional labor matters, Mr. Greenberg represents clients in collective bargaining negotiations, labor disputes, grievances and arbitrations, proceedings before the National Labor Relations Board, and in state and federal court. Mr. Greenberg also advises clients on the legal aspects of remaining union-free. With respect to employee relations matters, Mr. Greenberg has extensive experience assisting clients in numerous industries with the development and maintenance of personnel policies and personnel infrastructures. In this regard, Mr. Greenberg often works on these issues with clients as business needs and culture change as a result of business transactions, such as mergers and acquisitions.

Eric R. Magnus, Jackson Lewis, Wage and Hour Class Defense Lawyer, Employment Matters Attorney

Eric R. Magnus is a Shareholder in the Atlanta, Georgia, office of Jackson Lewis P.C. His practice is focused primarily on defending federal and state wage and hour class and collective actions in jurisdictions across the United States.

Mr. Magnus’ collective and class action practice focus primarily on “donning and doffing,” “off-the-clock” and misclassification wage and hour cases. Mr. Magnus has obtained summary judgment at the district and circuit court levels in Fair Labor Standards Act and state law cases across the...

Stephanie Peet, Employment Attorney, Jackson Lewis Law Firm

Stephanie J. Peet is a Principal in the Philadelphia, Pennsylvania, office of Jackson Lewis P.C. She regularly represents management in employment discrimination and wage and hour cases filed in both federal and state courts, as well as equal employment opportunity and labor relations matters pending before federal and state agencies.

Ms. Peet also counsels employers on various employee relations matters such as Family and Medical Leave Act compliance, reductions in force, wage and hour compliance, hiring, discharge and...