Proposed New Overtime Rule Increases Minimum Salary Requirements

The U.S. Department of Labor yesterday announced a new proposed rule increasing the minimum salary requirement from $23,660 per year ($455 per week) to $35,308 per year ($679 per week) for executive, administrative and professional employees to be exempt from overtime pay under the Fair Labor Standards Act.

These so-called "white-collar" exemptions to the FLSA's minimum wage and overtime pay requirements apply to employees who both perform certain job duties and are paid a minimum salary. The current job duties tests will remain unchanged under the proposed rule. The Department estimates that the new rule will affect more than 1 million employees nationwide—employees performing the requisite job duties but making less than $35,308 per year.

The proposed rule also increases the minimum salary requirement for exempt highly compensated employees from $100,000 to $147,414 per year. 

The Department set the current salary thresholds in 2004. In addition to increasing those thresholds, the proposed rule recommends that the salary thresholds for the white-collar and highly compensated employee exemptions be updated every four years going forward, subject to public comment and rulemaking procedures. No automatic increases are built into the new proposed rule.

Some may recall reading articles similar to this one not long ago. In 2016, the Department passed a final rule that would have raised the minimum salary for white-collar exemptions to $47,476 per year ($913 per week) and highly compensated employee exemption to $134,004 per year. That Obama-era rule was enjoined days before it was set to take effect and was ultimately invalidated by a Texas court. At the time, many employers took steps to comply with the higher minimum salary requirements by either raising salaries for exempt employees or reclassifying their positions as non-exempt and eligible for overtime pay.

Employers can expect a timeline and process similar to 2016. The proposed rule will be subject to a 60-day comment period. At the end of that period, the Department will review all comments and issue its final rule. In 2016, the Department provided a six-month period between publication of the final rule and its effective date to allow employers to plan and implement any necessary changes. We expect the Department to provide a similar lead time for employers this time around. And, as in 2016, any final rule promulgated by the Department is likely to be challenged in court.

As the final rule takes shape, employers should consider the proposed rule's potential impact on their workforce and what steps they might take to comply. For example, employers should consider whether to reclassify certain exempt employees as non-exempt, update job descriptions and other documentation to reflect any updated classifications, adjust head count or schedules to minimize or avoid the need for overtime, or raise certain exempt employees' salaries.

For more information regarding the new proposed rule and its potential effect on overtime pay requirements, please contact a member of Robinson Bradshaw's Employment and Labor Practice Group.