DOL New Overtime Pay Rule for FLSA Exemptions – Splitting the Difference

On Thursday March 7, 2019, the U.S. Department of Labor (“DOL”) published its new overtime pay regulation, which raises the minimum salary threshold to $35,308 per year for an employee to qualify for the Fair Labor Standards Act’s (“FLSA”) “executive, administrative, or professional” exemption from federal overtime and minimum wage laws (commonly referred to as the “white collar exemption”).  The FLSA exempts from both minimum wage and overtime requirements “any employee employed in a bona fide executive, administrative, or professional capacity.”  29 U.S.C. § 213(a)(1).  When enacting the FLSA, Congress did not define the terms “bona fide executive, administrative, or professional capacity” and instead delegated the power to define and delimit these terms to the Secretary of Labor through regulations, which the Secretary of Labor delegated to the DOL.

The DOL issues regulations that define the scope of the white collar exemption.  This new regulation increases the threshold amount by more than $11,000 and will enable more workers to earn overtime pay.  The new regulation is a significant raise from the current salary threshold amount of $23,660, which has been the existing rule since the Bush Administration in 2004.  In 2016, during the Obama Administration, the DOL issued a rule that would have raised the salary threshold to approximately $47,000.  A rule that would have increased approximately four million workers’ overtime eligibility, an increase many business groups argued was too high.  Days before the 2016 rule was set to take effect, a federal judge in Texas blocked the rule, which has been enjoined ever since.  The DOL’s new overtime regulation attempts to split the middle.  The increase will cause approximately a million more workers throughout the United States, who earn less than the salary threshold, to be eligible for overtime compensation.   

 Impact on Employers

The new overtime regulation will affect numerous industries and is subject to the public comment period, which allows the public to submit comments to the DOL for review within 60 days.  The DOL can then publish a finalized version of the regulation.  The DOL’s goal is to have the regulation finalized before the next election.  Once the rule is finalized and takes effect, employers should prepare for an increase in the salary basis to $35,308 to qualify for the white collar exemption under the federal test. 

 Employers in California must comply with both State and federal requirements.  Currently, California employers with 26 or more employees must pay a salary of at least $49,920 annually to exempt employees as well as ensure the employee satisfies the duties test to qualify for the white collar exemption. California employers with 25 or fewer employees must pay a salary of at least $45,760 annually to exempt employees as well as ensure the employee satisfies the duties test to qualify for the white collar exemption.

 For more information concerning the impact that this proposed new rule could have on your wage and hour obligations, please contact one of the authors or the attorney you usually work with at AALRR, or visit our website at www.aalrr.com.

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