DOL Proposes Increasing Minimum Salary for Overtime-Exempt Employees to $35,308

Author: Michael Cardman, XpertHR Legal Editor

March 8, 2019

The minimum annual salary for most employees exempt from the overtime requirements of the Fair Labor Standards Act (FLSA) would increase from its current level of $23,660 to $35,308 under proposed rules from the US Department of Labor (DOL).

The DOL's proposed regulations also would:

  • Allow employers to count nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the standard salary level test, as long as they are paid annually or more frequently;
  • Increase from $100,000 to $147,414 the minimum annual compensation for highly compensated employees who face a looser duties test;
  • Propose updates to the minimum salary levels every four years through notice-and-comment rulemaking to "prevent the earnings threshold levels from becoming significantly outdated in the future and to provide predictability and certainty for the benefit of workers and employers";
  • Maintain the current minimum annual salary level of $23,660 for employees in the US territories of Guam, Puerto Rico, the U.S. Virgin Islands and the Northern Mariana Islands and of $19,760 for employees in American Samoa; and
  • Increase the base weekly compensation rate for employees in the motion picture industry who are exempt from the salary basis requirement from $695 to $1,036.

The DOL projects that the new regulations will take effect in January 2020.

An additional 1.1 million workers who are currently overtime-exempt will become eligible for overtime unless their employers raise their salaries, reorganize workloads, adjust work schedules or spread work hours in order to avoid overtime pay, the DOL estimates.

Reconsidering the 2016 Rule

In 2016, the Obama administration DOL issued regulations that would have more than doubled the minimum salary level to $47,476 per year. But a week before the regulations were to take effect, a federal district court blocked them - ruling that the DOL exceeded its authority by raising the minimum salary level so high that it effectively would make the duties tests irrelevant.

Under the Trump administration, the DOL has acknowledged that the standard salary level needs to exceed $23,660 to more effectively serve its purpose. But it also stated that increasing the standard salary level to $47,476 per year was inappropriate. That level would have excluded from exemption 4.2 million employees whose duties would have otherwise qualified them for exemption, a result it said was "in significant tension" with the text of the FLSA.

The DOL said it reconsidered the $47,476 standard set in 2016 in light of the district court's decisions, some 214,000 public comments received in response to a request for public input in 2017 and feedback received at a series of listening sessions the DOL held around the country in 2018. It said:

To address the district court's and the Department's concerns with the 2016 final rule and set a more appropriate salary level, the Department proposes to rescind formally the 2016 final rule and simply to update the 2004 standard salary level by applying the same methodology to current data. The 2004 final rule set the standard salary level at approximately the 20th percentile of earnings of full-time salaried workers in the lowest-wage census region (then and now the South) and in the retail sector. This proposed rule would do the same.

Next Steps

The public (including employer groups) will have 60 days from the time the proposed regulations are officially published in the Federal Register to comment. Comments may be submitted online or by mailing written submissions to Melissa Smith, Director of the Division of Regulations, Legislation, and Interpretation, Wage and Hour Division, U.S. Department of Labor, Room S-3502, 200 Constitution Avenue, N.W., Washington, D.C. 20210.

After the comment period ends, the DOL will respond to comments and possibly make revisions before publishing a final rule. This final rule will include a formal effective date.