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Friday, April 05, 2019

Employers should be aware that overtime exemption law updates are  likely to take effect next year.  Earlier this month, the US Department of Labor (DOL) issued a proposed rule that would affect many employees who are currently classified as overtime exempt, by raising the minimum weekly salary requirement from $455 per week ($23,660 per year) to $679 per week ($35,308 per year), and by raising the salary limit for “highly compensated” employees from $100,000 to $147,414 per year.

The proposed rule affects employees who are overtime exempt under the so-called “white collar” exemptions -- those classified as executive, administrative, professional, outside sales, and computer employees. Currently, under the Fair Labor Standards Act (FLSA), exempt employees must qualify under a “duties test” that prescribes the types of work that exempt employees can perform and also meet a “salary test” that requires exempt employees to be paid a minimum of $455 per week. Employers have an easier time making “highly compensated” employees exempt from overtime – those making more than $100,000 are subject to a less rigorous duties test. If the proposed rule takes effect, the minimum salary requirement will go up to $679 per week ($35,308 per year), and employees making less than $147,414 per year will have to qualify under the regular duties test.

In its Notice of Proposed Rulemaking [https://www.dol.gov/whd/overtime2019/], the DOL says the lower and higher compensation-based limits are based on the salaries of full-time salaried workers in the lowest-paid census region (which is the South), with $679 per week approximating the 20% compensation percentile and $147,414 per year  representing the 90th compensation percentile.

The proposed rule revives an issue that arose during the last year of the Obama administration. In the Spring of 2017, the DOL issued a rule raising the minimum weekly salary for exempt employees to $913, and also established a formula that increased the minimum weekly salary every three years. A Texas court invalidated the law in August 2017, and few expected the DOL to revisit the issue during the Trump administration. According to the Texas decision, the DOL is authorized to define “bona fide executive, administrative, or professional” under the law, but exceeded its authority in the 2017 regulation by putting so much emphasis on the salary level test that it eclipsed the other statutory requirement for exemption, the “duties test.” The new salary limits are the DOL’s attempt to update the salary test to reflect the scale of today’s jobs environment while respecting the other elements of the statute. Click to download article

Should you have any questions about this topic, please contact the attorneys below.

Todd Masuda

Kyle T. Mordew


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