Employment Alert: "The Salary Test Revisited: DOL Proposes Increased Salary Threshold For Overtime Exemptions"

Porter Hedges LLP

Porter Hedges LLP

After years of anticipation, the U.S. Department of Labor has finally released a proposed rule amending the overtime exemption regulations under the Fair Labor Standards Act (the “FLSA”). The proposed rule (released on March 7, 2019) seeks to increase the minimum salary required to qualify for “white collar” exemptions, including the administrative, executive, and professional exemptions.

Since 2004, workers that performed certain exempt job duties (i.e., the “job duties test”) and earned at least $455 per week ($23,660 annually) have been exempt from overtime pay. The proposed rule seeks to significantly raise the salary threshold to $679 per week ($35,308 annually). If the new rule goes into effect, workers earning less than $35,308 per year will be entitled to overtime pay. This could affect as many as one million workers that were previously classified as exempt.

The proposed rule is the Trump Administration’s less drastic version of the rule proposed by the Obama Administration in 2016. The Obama Administration’s version of the rule increased the minimum salary to $913 per week ($47,476 annually), which would have resulted in as many as four million previously exempt workers being reclassified as non-exempt. However, the Obama Administration’s version of the rule was invalidated in 2017 after a Texas federal judge issued an injunction blocking the rule’s implementation. We discussed the injunction in our November 2016 Employment Alert.

Analysts speculate that the new rule will have a better chance of successfully overcoming judicial scrutiny than the Obama-era rule, because the new rule applies the same methodology that was originally used in 2004 to determine the salary threshold with adjustments to reflect current wages. 

What does this mean for employers? At this stage, the rule is only in the proposal stage and does not impact employers’ current FLSA classifications. A final version of the rule is expected following the notice and comment period, and, if successful, will go into effect in January 2020. In the interim, employers should keep the proposed regulations in mind when making salary decisions and creating new job positions. We will keep you updated on any developments as the rule progresses and provide advice on best practices for reclassification should the rule be enacted.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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