For the first time in four years, the U.S. Department of Labor plans to increase the minimum salary level to be exempt from the Fair Labor Standard Act’s overtime requirements.
What is the Department proposing?
Under the current FLSA regulations, a covered employer must generally pay executive, administrative, or professional (EAP) employees at least $684 per week (equivalent to $35,568 annually for a full-year employee), which is the standard salary level to be exempt from the FLSA overtime protections.
The Department proposes to increase the standard salary level for EAP workers to $1,059 per week ($55,068 annually). The Department derived that number from the 35th percentile of earnings of full-time salaried workers in the lowest-wage Census Region (currently the South).
The Department also plans to increase the highly compensated employee (HCE) total annual compensation requirement to the annualized weekly earnings of the 85th percentile of full-time salaried workers nationally, which would be $143,988 annually.
The Department would then automatically update these earnings thresholds every three years with current wage data. At least 150 days before the update of the standard salary level and the HCE total annual compensation requirement, the Department would publish a notice with the new earnings levels described above in the Federal Register.
Will the duties tests change, too?
Remember that there are other duties-based requirements to qualify for an EAP exemption. In other words, salary alone is just one component to consider when determining whether an employee is eligible for overtime.
(Job titles are not dispositive either. So a “manager” could still be overtime-eligible.)
But, no, the Department is not changing the duties tests.
Does the federal proposal impact state overtime laws?
Nope. If states have more employee-friendly protections, they apply.
How many employees will this rule change impact?
In the first year, the Department estimates that 3.4 million workers exempt under the current regulations who earn at least the current weekly salary level of $684 but less than the proposed salary level of $1,059 would, without some intervening action by their employers, become newly entitled to overtime protection under the FLSA.
Similarly, the Department estimates that an additional 248,900 workers who earn at least $107,432 per year (the current HCE total annual compensation level) and who meet the minimal HCE duties test but not the standard duties test, would, without some intervening action by employers, become eligible for overtime if the HCE total annual compensation level were increased to the proposed level of $143,988 per year.
How much will this change cost employers?
The Department estimates that in Year 1, the proposed rule would impose $1.2 billion in direct costs on employers, including $427.2 million in regulatory familiarization costs, $240.8 million in adjustment costs, and $534.9 million in managerial costs.
Is there an exemption for small businesses and non-profits?
Bless your heart. No.
Is this even legal?
During the Obama administration, a federal judge held that the Department exceeded its authority by trying to double the salary level for the EAP exemption.
How do I comment on the Department’s proposed changes to the exemption regulations for EAP workers?
Go to www.regulations.gov to submit written comments within 60 days of publication in the Federal Register.