By Maria O. Hart and Christina M. Jepson
On March 7, 2019—after years of anticipation—the U.S. Department of Labor (DOL) released its proposed increase to the salary threshold for overtime exempt status eligibility under the Fair Labor Standards Act (FLSA) from $23,660 to $35,308 a year (from $455 to $679 per week). The FLSA requires covered employers to pay employees at the least the federal minimum wage and pay overtime at time and a half for all hours worked over 40 hours in a workweek. An employee may be exempt from these overtime rules if the employee is paid a minimum required salary and falls within one of the recognized job classifications.
Employers may recall that under President Obama’s administration, revised FLSA exempt guidelines were to go into effect in December 2016 but a federal court in Texas, a federal court in the Fifth Circuit, and the DOL leadership appointed by President Trump changed the trajectory of that implementation. The DOL asked all courts to postpone any further decisions on the proposed minimum salary changes until the agency could review the regulations and propose new changes.
In developing the proposed rule updating the salary thresholds, the DOL received extensive public input from six in-person listening sessions held around the nation and more than 200,000 comments as part of a 2017 Request for Information. The proposed salary thresholds rely on wage data collected across diverse regions, which have been projected to January 1, 2020. The DOL also sought input from a broad array of stakeholders, including small business owners, large companies, employer and employee associations, state and local governments, unions, higher education institutions, non-profit organizations, law firms, workers and other interested members of the public.
The table below summarizes the proposed changes and compares them against the existing 2004 FLSA guidelines and the changes that were proposed and anticipated in 2016:
(Currently in Effect)
|2016 Final Rule Under
|2019 Proposed Rule Under Trump Administration|
|Salary Threshold|| $23,660 annually
($455 per week)
| $47,476 annually
($913 per week)
| $35,308 annually
($679 per week)
|Bonus/Incentive Pay||None||Employers could satisfy up to 10 percent of the standard salary requirement with nondiscretionary bonuses and incentive payments made on a quarterly or more frequent basis.||Employers may satisfy up to 10 percent of the standard salary requirement with nondiscretionary bonuses and incentive payments (including commissions) paid on an annual or more-frequent basis.|
|Highly Compensated Employees (HCE) Threshold||$100,000||$134,004||$147,414|
|Scheduled Increases to Salary Thresholds||None||The minimum salary thresholds were to be indexed every three years, with the first change resulting from indexing to occur on January 1, 2020. The new salary threshold would have been indexed to the 40th percentile of all full-time salaried workers in the lowest-wage Census Region.||Will occur every four years via a notice and comment process.|
What this means for employers:
If you are an employer, you are almost certainly subject to the FLSA. The FLSA is a regulatory framework that covers several wage and hour issues including minimum wage, employment of minors, standard work week hours and whether certain employees are exempt from overtime wages. The FLSA applies to employers (1) whose annual sales total $500,000 or more, or (2) who are engaged in interstate commerce. You may think this would restrict the FLSA to covering only large companies, but in reality. the law covers nearly all workplaces because of the interstate commerce trigger.
It is also important to note that to treat an employee as exempt from overtime, an employer must meet the salary threshold as well as meet the “duties requirements” for exempt employees. In other words, an employer may only treat an employee as exempt if the employee meets the salary threshold (or is highly compensated) and meets one of the exempt categories such as the professional, administrative, executive, outside sales or computer exemptions. Each of these categories has precise job requirements that must be met. If an employee is not exempt, an employer must carefully track an employee’s hours and pay overtime when warranted.
The timeline for implementation of the rule:
As a reminder, the DOL has only issued a “Notice of Proposed Rulemaking,” meaning the DOL is informing the public that a new rule is going to be implemented, that the language of the proposed rule is fairly certain and now is the time to weigh in with concerns or support for the proposed rule. This administrative rule making process generally proceeds as follows:
1. Public Comment
Citizens and interest groups have the opportunity to make their opinions known about a proposed rule. Comment periods are typically 30 to 60 days. Under this overtime rule, and in this case, the DOL is allowing a 60-day comment period (which begins only after the proposed rule is formally published in the federal register).
If the DOL receives significant comments, it may elect to revise the rule but would have to re-issue and re-propose the new rule containing the revisions. Revisions are not required if the DOL still believes it is headed in the right direction.
2. Publication of the Final Rule
Once the rule has been proposed, commented on and revised as necessary, it is ready to be published as a final rule. We can expect that the DOL will publish as the final rule a version very similar to the Notice of Proposed Rulemaking. The effective date for the rule replaces the deadline for submitting comments. This date is usually within 30 days of publishing the final rule, however the DOL and Obama administration allowed 180 days—nearly six months—before the rule went into effect in 2016.
Those following this process can expect several more months before a “final answer” is received from the DOL on the effective date of the new salary thresholds for exempt status under the FLSA.
Now is a great time to conduct an internal audit of your employee classifications and employee handbook policies governing overtime reporting and calculations. If you need assistance, Parsons Behle & Latimer has an experienced bench of employment law attorneys to assist you. Please contact Christina Jepson at 801-536-6820 or firstname.lastname@example.org for more information. Idaho clients, please contact Maria Hart at 208-562-4892 or email@example.com.
This post originally appeared on Parsons, Behle, & Latimer.