Department of Labor Proposes Amendments to the FLSA’s Overtime Regulations
On March 7, 2019, the U.S. Department of Labor (DOL) announced a notice of proposed rulemaking and request for comments on proposed updates and amendments to the regulations issued under the Fair Labor Standards Act (FLSA) which implement the exemption from minimum wage and overtime pay requirements for executive, administrative, professional, outside sales, and computer employees (i.e., the FLSA’s “EAP” or “white collar” exemptions).
The FLSA requires covered employers to pay employees a minimum wage and, for employees who work more than 40 hours in a week, overtime premium pay at least 1.5-times their regular rate of pay, subject to certain exemptions. For an EAP exemption to apply, the regulations generally require each of three tests to be met: (i) the salary basis test – 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; (ii) the salary level test – the amount of salary paid must meet a minimum specified amount; and (iii) the duties test – the employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the relevant regulations.
Under current regulations, employees with a salary below $455 per week ($23,660 annually) must be paid overtime if they work more than 40 hours per week, and employees making at least this salary level may be eligible for overtime based on their job duties. As proposed to be amended, the minimum weekly standard salary level would be increased from $455 to $679 per week ($35,308 annually). The total annual compensation requirement needed to exempt highly compensated employees (HCE) would also be increased from $100,000 to $147,414. Employers generally would be allowed to: (i) count nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the standard salary level test if such bonuses are paid annually or more frequently; and (ii) make a “catch-up” payment within one pay period of up to 10% of the total standard salary level for the preceding 52-week period if an employee does not earn enough in nondiscretionary bonuses and incentive payments to retain exempt status (though such payment would only count toward the prior year’s salary amount, not that of the year in which it was paid). To be exempt as an HCE, however, an employee would be required to receive at least the new standard salary amount of $679 per week on a salary or fee basis, without regard to nondiscretionary bonus and incentive payments.
The proposed amendments also include special salary levels for certain U.S. territories and an updated base rate for employees in the motion picture producing industry. A periodic review to update the salary threshold would also be required, and would continue to be subject to the notice-and-comment rulemaking process.
The DOL has indicated that it will accept comments up to 60 days following the date the notice of proposed rulemaking is published in the Federal Register.
