On March 7, 2019, the Department of Labor (“DOL”) announced its long-awaited proposed overtime rule. The DOL’s proposed rule would increase the outdated “white collar” salary exemption threshold from $23,600 to $35,308. It would likewise increase the salary threshold for “highly compensated employees” from $100,000 to $147,414 annually. The proposed salary adjustments are based on wage data projected through January 2020, the anticipated effective date. The new rule also includes a recommendation for a four-year periodic review, following public input.
This proposal follows the DOL’s failed attempt to implement its May 23, 2016 final rule that was enjoined by the United States District Court for the Eastern District of Texas. Presently, the DOL’s appeal to the United States Court of Appeals for the Fifth Circuit is being held in abeyance. Due to these obstacles, the DOL is currently enforcing the same salary threshold ($23,600) that was established in 2004.
The new rule would formally rescind the 2016 final rule and address both the Court’s and DOL’s concerns regarding the basis for determining the 2016 “white collar” threshold ($47,476). To maintain consistency, the new salary thresholds are based on the same methodology used to calculate that 2004 salary. Additionally, the DOL intends to modernize the salary requirements by allowing nondiscretionary bonuses and incentives to satisfy up to 10 percent of the standard salary level test.
Impact on Employers
For California employers, the proposed federal standard still falls below California’s salary threshold for most exempt employees, which is $49,920. Thus, this new standard will have minimal if any impact on California’s exempt employees. However, the DOL’s proposed rule would impact employers in states with a “white collar” salary threshold below $35,308, requiring companies to comply with the more stringent federal regulations. These employers would be required to increase employee compensation (for employees who meet the duties test) to satisfy the exemption. However, employers will be permitted to use nondiscretionary bonuses and incentive payments to satisfy up to 10 percent of the standard salary level, so long as these payments are made on at least an annual basis.
Alternatively, employers may also transition a salaried employee to an hourly rate and compensate the employee in accordance with applicable overtime laws.
In anticipation of the possible enforcement of DOL’s proposed overtime rule, we recommend employers begin the process of auditing their workforce to identify which employees would require reclassification or a salary adjustment under the new regulations.
Those who may be affected by the proposed rule are encouraged to review their policies and practices. Please contact Gordon Rees Scully Mansukhani Employment attorneys with any questions regarding the new overtime regulations.
For more information on the final rule, please click here.