Employers: Proposed Rule Change Could Make Over a Million Workers Eligible for Overtime

Employers should begin preparing for the potential for an increased minimum salary threshold that would make more than a million white-collar workers eligible for overtime pay starting in 2020.

On March 7, 2019, the Department of Labor (DOL) issued a Notice of Proposed Rulemaking (notice) to raise the minimum salary threshold for the Fair Labor Standards Act’s so-called “white collar” exemptions to $35,308 per year. This increased salary level – although more modest than what the Obama administration proposed in 2016 – would make more than a million workers overtime-eligible by 2020.

Under the current standards, in place since 2004 for executive, administrative, professional, outside sales and computer employees, those earning less than $455 per week ($23,660 annually) are eligible for overtime premiums if they work more than 40 hours per week. The notice raises that threshold to $679 per week ($35,308 annually).

In addition, the notice raises the income threshold for a “highly compensated employee” from $100,000 to $147,414 annually, which is anticipated to render over 200,000 previously exempt workers overtime-eligible. The DOL also proposes to implement an automatic adjustment schedule for these threshold figures.

Further, the notice proposes to allow employers to count certain bonuses and commissions for up to 10 percent of the employee’s overall income to meet the new income thresholds.

In 2016, the Obama administration proposed a more expansive white-collar exemption increase to $913 per week ($47,476 annually), but a federal court struck it down for not sufficiently considering an employee’s job duties in evaluating the exemption.

The current administration’s notice seeks to avoid such problems by leaving intact current regulations regarding eligibility for exemptions based on the nature of the work performed, referred to as the “standard duties” test.

Employers may need to review or audit the pay of current white-collar employees to determine who may be affected, and consider a plan for potentially reclassifying such individuals, increasing their salary, or taking other appropriate steps in light of this development.

The notice remains open to public comment for at least the next 60 days.