Over the course of the past seven years, the U.S. Department of Labor has made repeated attempts to increase the number of exempt American employees who are eligible for overtime under the Fair Labor Standards Act (FLSA) – some successful, some not.
In 2016, the DOL sought to implement regulations to increase the salary threshold for “white collar” FLSA exemptions from $455 to $913 per week, which would result in any employee who qualified for a white collar administrative, executive, and professional exemption and who made less than $47,476 annually ($913 per week) eligible for overtime pay. The 2016 regulations, which were scheduled to take effect on December 1, 2016, also called for the threshold to be updated every three years.
Less than two weeks before the regulations were to go into effect, a federal court granted a nationwide injunction to block the regulations. The court ruled that the DOL had exceeded its authority by more than doubling the salary threshold. Ultimately, the 2016 regulations never went into effect.
Undaunted, in 2019 the DOL took another run at increasing the salary threshold and ultimately announced a final rule to increase the threshold to $684 per week ($35,568 per year). Notably, this final rule did not include a provision for automatic updates. Unlike its predecessor, this final rule became effective January 1, 2020. It has been estimated that this final rule caused more than one million additional workers to become eligible for overtime compensation.
New rule proposes increased threshold and automatic 3-year updates
Just today, the DOL proposed to raise the salary threshold for exempt employees once again. Under the newly issued proposed rule, the FLSA regulations standard salary level for white collar exempt workers would increase from $684 per week to $1,059 per week ($55,068 per year). This new proposed salary level is the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage census region. The DOL estimates that there are approximately 3.4 million currently exempt employees who earn the current exemption requirement of $684 per week but less than the proposed exemption requirement of $1,059 per week, thereby making them eligible for overtime if the new rule goes into effect.
Additionally, the proposed rule would increase the total annual compensation requirement for highly compensated employees from $107,432 per year to $143,988 per year. The highly compensated employee exemption provides an employee is exempt from the FLSA’s overtime requirements if they are paid the requisite salary threshold, perform non-manual labor, and perform at least one of the job duties required to meet the administrative, executive, or professional exemption. Essentially, this allows employers to not pay overtime to employees who are highly compensated even if the employees might not meet all the job duty requirements to fall into the administrative, executive, or professional exemption. The new proposed salary level for the highly compensated employee exemption is based on the annualized weekly earnings of the 85th percentile of full-time salaried workers nationally. The DOL estimates that there are slightly less than 250,000 employees who will no longer meet the highly compensated employee exemption under the new higher salary threshold.
Importantly, the proposed rule also automatically updates the earnings thresholds every three years so that the earnings threshold keep pace with changes in worker salaries. This means that employers would need to monitor changes in salary threshold requirements and regularly review whether employees are properly classified as exempt.
Finally, the proposed rule restores overtime protections for U.S. territories, which makes sure that workers in those territories where the FLSA minimum wage applies have the same overtime protections as other U.S. workers.
Employer next steps
Once the proposed rule is officially published in the Federal Register, it will be open for public comment. Instructions on how to submit a comment will be located on the DOL’s regulations page, which can be found here: https://www.dol.gov/regulations.
We will be following this proposed rule and any challenges closely. For now, employers should review their exempt positions to see which positions may be impacted should this proposed rule go into effect. Employers should consider whether they plan to raise the salaries for impacted workers to keep affected positions exempt or re-classify affected positions as non-exempt. For assistance in reviewing your current FLSA exemptions and the impact of this proposed rule on your exempt workforce, please contact your McAfee & Taft Labor & Employment Group attorney.