The proposed rule raises the salary threshold to $679 per week (or $35,308 per year) for exempt employees who are executives (supervisors), administrators and professionals. The current salary threshold is $455 per week (or $23,660 per year), and has remained unchanged since 2004.
The proposed rule does not change any of the duties tests employees must also meet to be exempt.
The Obama administration proposed a rule in 2016 that sought to significantly increase the salary threshold, but that rule has faced legal challenges and remains tied up in litigation. DOL made clear its intent is to formally rescind the 2016 proposed rule, regardless of the fate or status of the substance of the current proposed rule. Thus, if the current proposed rule is impacted or rescinded by judicial action, or otherwise, the rule will revert back to the 2004 salary threshold.
DOL arrived at the proposed $679 figure by applying the same methodology from 2004 to current data and adjusting for inflation to January 2020. Specifically, they looked at the 20th percentile of a combined subpopulation of salaried employees in the south and the retail industry.
It appears from this information that DOL intends the effective date for the proposed rule to be January 2020.
DOL estimates this will result in 1.1 million workers losing exempt status and being subject to the overtime rules.
Under the proposal, employers may pay up to 10 percent of the salary threshold using nondiscretionary bonuses, incentive payments and commissions that are paid on annual or more frequent basis. This rule includes a “catch up” provision that allows employers to make up the difference in a one-time payment should the bonus/incentive/commission payment not equal the necessary threshold for the exemption.
The proposed rule would also increase the salary threshold for highly compensated employees from $100,000 to $147,414.
Although there is no provision in the proposed rule that would automatically increase the salary threshold on a given date, DOL has committed to revisiting the issue with a new Notice of Proposed Rulemaking (NPRM) and public comment period every four years.
DOL invites public comment on all the proposed changes to the overtime rules. This process will begin after the DOL formally publishes the NPRM in the Federal Register, and will continue for 60 days. The NPRM can be found here.
If you have questions about how the proposed overtime rules may affect your business or wish to comment on the proposed rule during the notice and comment period, our labor and employment attorneys are here to assist.