Think back to 2016, when President Obama was still in office and the presidential campaigns were in full swing. It was a busy time for many employers making adjustments to comply with a controversial rule issued by the Department of Labor (“DOL”) that drastically expanded overtime protections for millions of white-collar workers.
To the dismay of many employers, the 2016 rule, among other things, doubled the annual salary threshold (from $23,660 to just over $47,000) required to qualify for the executive, administrative, and professional (“EAP”) exemptions under the Fair Labor Standards Act (“FLSA”). The dramatic increase to the salary threshold, which had not been updated since 2004, left many employers scrambling to evaluate employee classifications and, consequently, tasked with reclassifying many workers as non-exempt, and hence eligible for overtime pay. This was in addition to handling the employee relations issues that followed those changes.
Before the 2016 rule took effect, however, it was blocked by a federal district court judge in Texas. With President Trump’s election, a new Labor Secretary, Alex Acosta, was appointed. As promised during Acosta’s confirmation hearings, late last week, the DOL proposed the long-awaited replacement to the 2016 Obama-era rule.
The new proposed rule will be subject to a 60-day public comment period once it is published in the Federal Register. The most notable and anticipated piece of the proposed rule is the adjusted salary threshold for the EAP or “white-collar” exemptions. The threshold increased from $23,660 annually to $35,308 annually, or from $455 per week to $679 per week. Notably, the new rule allows for nondiscretionary bonuses and incentive pay (including commissions) to satisfy up to 10% of the salary threshold, if made on an annual or more frequent basis.
While the salary threshold did increase, the increase is not the significant increase included in the 2016 Obama-era rule. To set the threshold, the Acosta DOL followed the methodology used to set the threshold in 2004, basing it on the 20th percentile of full-time earnings for workers in the South, the census region with the lowest overall income. The proposed rule also contemplates that the salary threshold would be revisited every four years through new proposed rulemaking, rather than subject to the automatic annual increases outlined in the 2016 final rule.
Though it had been discussed as a possibility, no changes were made to the duties test for the EAP exemptions.
Finally, in an unexpected move, the proposed rule also increased the salary threshold for highly-compensated workers from $100,000 annually to $147,414 annually, which is actually $13,000 higher than the 2016 final rule.
The DOL seemed to steer the proposed rule to a middle ground, not fully satisfying pro-business or pro-labor interests, but probably increasing its chances of surviving legal or political challenges with the 2020 election looming.
After a period of notice and comment, a final version of the proposed rule is expected before the 2020 election season gets into full swing. Until then, no changes are mandatory, although preparation for such changes can never come too early. The DOL has encouraged any interested members of the public to submit comments about the proposed rule electronically online (rulemaking docket RIN 1235-AA20).
K|W|W will continue to share updates on the status of the new proposed rule, and provide employers with advice on how to comply with the changes that will ultimately be required once the new rule becomes final. If you have any questions, please feel free to contact Tom Green, Katie Basch, or any other K|W|W attorney.