Proposed changes to the Fair Labor Standards Act

Mary Moffatt

Attorney Wimberly Lawson Wright Daves & Jones, PLLC

On March 7, 2019, the US Department of Labor (DOL) issued long-awaited proposed changes to the amount of salary required to satisfy the “white-color exemptions” for purposes of overtime under the Fair Labor Standards Act (FLSA). The DOL proposed to increase the salary-level threshold from current level of $23,660/year ($455/week) to $35,508/year ($679/week), about a 49% increase.

Under the FLSA and the DOL regulations, each of three tests must be met for one of the FLSA’s exemptions to apply: (1) the employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in quality/quantity of work performed (“salary basis test”); (2) the amount of salary paid must meet a minimum specified amount (“salary level test”); and (3) the job duties must meet the executive, administrative, or professional duties as defined by the regulations (“duties test”).

The proposed rule would also increase the total annual compensation requirement for “highly compensated employees” from the currently-enforced level of $100,000 to $147,414 per year and provide for periodic review (not auto-updates) of the salary threshold (which would continue to require notice-and-comment rulemaking). The proposal also calls to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid annually or more frequently to satisfy up to 10 percent of the standard salary level. The proposed rule does not make any changes to the job duties test, but only addresses the salary level test.

There is a 60-day period available for the public to register comments. Most experts agree the proposed changes are likely to be approved and later become final. If that holds true, this increase will result in reclassification of more than 1,000,000 US workers from exempt to non-exempt and, thus, entitled to overtime for all hours worked over 40 in a workweek. If finalized, the DOL estimates the average annualized direct employer cost will total approximately $120.5 million per year over the first ten years, but this would still be approximately $224 million less per year than under the previously-proposed DOL rule issued in 2016 (which was enjoined by the Fifth Circuit Court of Appeals and remains there pending final rules).