The Department of Labor released a new proposed rule that would raise the minimum salary requirements for exemptions for executive, administrative, and professional employees under the Fair Labor Standards Act’s (FLSA) overtime pay requirements. Under the proposed rule, the minimum salary threshold would increase to $35,308/year ($679/week), up from the current $23,660/year ($455/week).
In 2016, the DoL issued a final rule that raised the current threshold— which had not increased since 2004—to $47,476/year ($913/week) (see Client Action Bulletin 16-2). In 2017, a federal district court invalidated the rule, but the DoL, under a new Administration, appealed to the Fifth Circuit. The DoL also asked the court to hold the appeal while the agency reconsidered proposing an appropriate salary level.
The new proposed rule also would:
• Increase the total annual compensation requirement for “highly compensated employees” from the current $100,000 to $146,414
• Commit the DoL to periodically review the salary threshold via the proposed rulemaking process every four years
• Allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the salary level threshold
The proposed rule makes no changes to the FLSA’s “duties tests.”
Following publication in the Federal Register, the proposed rule will be open for public comment for 60 days. (As of March 19, the proposed rule has not been published.) The DoL hopes to finalize the rule in time to apply it beginning in January 2020.
Employers should begin to evaluate how the rule will affect their pay and job classification practices with an eye toward changes that may be necessary if a final rule applies in 2020. In addition, employers should consider the effects any final rule might have on their benefit programs (e.g., overtime compensation under a retirement plan’s contribution formula and differing contribution requirements for healthcare coverage based on FLSA exempt/nonexempt status) and plan accordingly.
Please contact your Milliman consultant for additional information about the DoL’s proposed rule.