The Fair Labor Standards Act sets national standards for wage and hour issues related to employees. The law empowers the Department of Labor to set eligibility standards for overtime pay as well as a series of exemptions for it. On March 7th, 2019, the Department of Labor issued a Notice of Proposed Rulemaking that will change those eligibility standards significantly.
Overtime Exemption
The Department of Labor has applied a white-collar overtime exemption for a long time. Under this exemption, workers with primarily administrative or executive duties do not qualify for overtime. However, the Department has also consistently enforced a salary minimum for employees in this category to be eligible as exempt. In the early 2000s, this salary minimum equated to a little under twenty-four thousand dollars ($23,667) a year.
More Employees Eligible For Overtime Pay
In 2016, the Obama administration proposed a rule change that would raise that salary minimum to almost forty-eight thousand dollars a year ($47,476). The rule change would have more than doubled the salary requirement for this exemption, making over four million additional workers across the country eligible for overtime pay. A Court in Texas blocked that rule change shortly after the 2016 presidential election. Interestingly, the Court’s reasoning seemed to apply that any salary minimum would be invalid under the law.
A Less Ambitious Update Does Not Keep Up With Inflation
Now, the Department of Labor has proposed a less ambitious update to the salary minimum for the white collared exemption that would go into effect in 2020. The new rule proposes raising the salary minimum from $23,667 to approximately thirty-five thousand dollars ($35,308). The update still represents an almost 50% increase in the salary minimum. Relative to inflation, however, it barely qualifies as an increase when compared to the level set in 2004.
Non-Discretionary Bonus And Commission Payments
The proposed rule does make several other changes as well. Most prominent amongst those, it allows employers to count specific non-discretionary bonus and commission payments towards the salary threshold provided the right requirements are met. It also raises the “highly compensated employee” exemption from one hundred thousand dollars a year ($100,000) to almost one hundred and fifty thousand dollars a year ($147,717).
60-Day Comment Period For The D.O.L.
The proposed law is sure to meet legal challenges after the sixty-day comment period passes. While the Department of Labor appears to have reached for a middle ground on the level of the salary floor, both labor advocates wishing for a higher floor and business groups happy with the current one are likely to file suit to block the regulation from taking effect in an effort to force through a regulation more in keeping with their desires.
Advice For Employers
Employers will have to review their classification of employees to ensure they remain exempt If the regulation does go into effect. Many employers already reclassified workers or increased their pay before the Court blocks the 2016 rule. Taking the extra time to review your employees’ duties and pay to ensure legal compliance can save big money in lawsuit costs.
