On March 7 the U.S. Department of Labor (DOL) announced a proposed rule under the Fair Labor Standards Act (FLSA) that would dramatically increase the number of employees eligible for overtime pay.

The FLSA requires covered employers to pay employees who work more than 40 hours per week overtime pay (1.5 times the employee’s regular rate of pay). However, there are certain exemptions to this general rule.

The FLSA includes a “white collar exemption” or the “EAP” exemption for bona fide executive, administrative, or professional employees. The EAP exemption generally requires that an employee: (1) be paid a predetermined or fixed salary that is not subject to reduction based on quantity or quality of work (salary basis), (2) receive a salary that meets a minimum specified amount (salary level), and (3) have duties that primarily involve executive, administrative or professional duties (duties test).

The proposed rule updates the “salary level” element of the EAP exemption. Under the current rule, employees with a salary below $455 per week ($23,660 annually) must be paid overtime pay if they work more than 40 hours per week. The current salary level was last updated in 2004. The Department of Labor acknowledges that the salary level needs to increase to reflect current wages and to effectively serve its purpose.

The proposed rule increases the standard salary level to $679 per week ($35,308 per year). Accordingly, under the proposed rule, employees with a salary below $679 per week would be entitled to overtime pay for all time worked over 40 hours per week. Overtime eligibility for an employee who earns more than the salary level varies based on whether the employee’s duties satisfy the “duties test” element of the EAP exemption.

The proposed rule also increases the salary level for “highly compensated employees” (HCE) from $100,000 to $147,414 per year. The highly compensated employee exemption has a reduced “duties test” and a higher salary level.

The proposed rule also would allow employers to count nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary level. Additionally, the Department of Labor has proposed updates to the salary levels (both the standard salary level and the HCE salary level) every four years to ensure the salary levels continue to provide useful tests for exemption.  

The notice-and-comment period for the proposed rules expires on May 21. If the proposed rule becomes final, the Department of Labor anticipates the rule to go into effect in early 2020.

To read the proposed ruled in its entirety, click here.

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