Big News on Overtime Pay: Labor Department Proposes $35k Minimum Salary for Overtime Exemptions

Late yesterday the U.S. Department of Labor announced its proposal for the minimum salary for employees to qualify for “white-collar” exemptions from overtime pay.  DOL set the new salary minimum at $679 per week, or $35,308 per year.  This proposal roughly splits the difference between the $47,800 minimum the Obama Administration proposed in 2016 and the $23,700 minimum presently in effect.

Under longstanding DOL rules under the Fair Labor Standards Act, an employee who is paid less than the minimum salary cannot qualify for a “white-collar” exemption from overtime pay. The DOL’s new proposal allows up to 10% of the required $35,308 salary to be met by nondiscretionary bonuses, incentives and commissions.  This is a carryover from the rule proposed by the Obama Administration.

Effective Date is Unknown

There is no scheduled date for the proposed rule to take effect.  The rulemaking process required by federal law will take several months.  Legal challenges are likely to cause further delay.  Worker advocacy groups will contend the salary threshold should be higher; business groups are likely to contend the salary threshold should be lower or nonexistent.

 “Duties Test” is Unchanged

Most important, the new rule makes no changes to the “duties test” for the overtime exemptions.  Unless an employee’s job duties meet the regulatory requirements for an exemption, the employee is entitled to overtime pay – regardless of the amount of his or her salary.  Legal fights about overtime pay almost never turn on the minimum salary requirement.  Instead, they turn on whether employees perform the kinds of job duties that are required to qualify as an “Executive,” “Professional,” or “Administrative” employee.  Those “duties tests” are specific and rigorous.

Therefore, for employers intent on complying with FLSA overtime requirements, the essential task is to know whether each employee who is classified as exempt from overtime actually has job duties that meet the requirements for one of the statutory exemptions.

What Impact?

For many employers, the proposed salary threshold will have little impact.  Because the $47,800 threshold was struck down just a week before it was scheduled to take effect in 2016, many employers had already taken steps to adjust exempt employees’ salaries to meet or exceed that level.  Second, if an employee truly has “Executive,” “Professional,” or “Administrative” duties of the level necessary to qualify for an overtime exemption, it is highly unlikely that the employee’s market-level compensation would be below $38,000 per year.

We will keep you informed of meaningful developments as the proposed rule makes its way through the regulatory process and court challenges.  As soon as a date is set for the proposed rule to take effect, we will report that to you.