U.S. Department of Labor Proposes New Salary Levels for “White Collar” Overtime Exemptions

March 11, 2019
The Fair Labor Standards Act requires employers to pay covered employees time and one half their regular hourly wage rate for all hours worked in excess of 40 in any work week. The Act exempts from overtime requirements “any employee employed in a bona fide executive, administrative, or professional capacity,” 29 U.S.C. § 213(a)(1), commonly referred to as the “white collar” exemptions. The U.S. Department of Labor is charged with interpreting this exemption and, since the 1940s, has included a “salary-level” test in addition to a duties test, as part of its regulations prescribing which employees fall within the white collar exemptions.

In May 2016, the Department issued new regulations, which were scheduled to take effect on December 1, 2016, substantially raising the salary threshold from $455 per week ($23,660 per year) to $913 per week ($47,476 per year). (See our May 31, 2016 memorandum for more discussion of the 2016 rule.) Various states and business groups sued to block the Department’s overtime regulations and, on November 22, 2016, Judge Amos Mazzant of the Eastern District of Texas temporarily enjoined the regulations on a nationwide basis. Nevada v. U.S. Dep’t of Labor, 218 F. Supp. 3d 520 (E.D. Tex. 2016). Judge Mazzant held that “the Department exceed[ed] its delegated authority and ignore[d] Congress’s intent by raising the minimum salary level such that it supplants the duties test.” Id. at 530. (See our November 29, 2016 memorandum for more discussion of Judge Mazzant’s decision.) By Order dated August 31, 2017, Judge Mazzant permanently enjoined the regulations. Nevada v. U.S. Dep’t of Labor, 2017 WL 3837230 (E.D. Tex. Aug. 31, 2017). (See our September 5, 2017 memorandum for more discussion of Judge Mazzant’s decision.) The Department appealed the original temporary injunction ruling to the Fifth Circuit but, after the change in Presidential administrations, the Department informed the Fifth Circuit that it intended to implement new overtime regulations through notice-and-comment rulemaking. (See our July 7, 2017 blog post for more discussion of the appeal.) The Fifth Circuit is holding the appeal in abeyance pending the new rulemaking.

The rulemaking process began on July 26, 2017, when the Department issued a Request for Information (“RFI”) soliciting comments about the overtime rules and began holding “listening sessions” around the country in advance of proposing a new rule. (See our July 27, 2017 blog post for more discussion of the RFI.) Late last week, on March 7, 2019, the Department issued its Notice of Proposed Rulemaking proposing to rescind formally the 2016 rule and to institute a new rule that would increase the minimum salary threshold from $455 per week ($23,660 per year) to $679 per week ($35,308 per year). The Department calculated this revised salary threshold by applying the same methodology as the prior 2004 rulemaking did, which used the 20th percentile of earnings of full-time salaried workers in the lowest-wage census region (the South), to current data. The Department proposed permitting nondiscretionary bonuses and incentive payments to count towards up to 10% of the standard salary level.

The Department also proposed updating the salary threshold for the Highly Compensated Employee (“HCE”) test, which applies a reduced duties requirement to determine exempt status. The Department proposed raising the HCE threshold from $100,000 per year to $147,414 per year, which is slightly higher than the 2016 Obama-era rule ($134,004). The Department calculated this revised salary threshold by applying the same methodology as the 2016 rule, which used the 90th percentile of full-time salaried workers nationally, to current data.

Finally, the Department rejected several ideas proposed in comments and listening sessions, such as modifying the duties test. It also rejected applying automatic adjustments to the salary threshold, which had been part of the 2016 rule. The Department instead indicated that it intended to review the salary threshold and propose updates every four years through notice-and-comment rulemaking.

The Department’s Notice of Proposed Rulemaking is available on its website, and will be published in the Federal Register. It will be open to public comment for 60 days after publication in the Federal Register. The Department will then review the comments and issue a final rule.

DOL Wages and Overtime