UPDATE (3/22/19): The proposed regulations were officially published in today's Federal Register. Comments will be accepted through May 21, 2019.
Since the beginning of Alexander Acosta’s term as Secretary of the U.S. Department of Labor, he has been working on a plan to update the 541 regulations under the Fair Labor Standards Act. Among other things, those regulations govern who is and is not an executive, administrative or professional employee exempt from the FLSA’s minimum wage and overtime requirements.
Proposed regulations were finally released on March 7 and are expected to go into effect in January 2020. The following is a summary of the key substantive provisions in the proposed regulations.
New salary threshold for EAP exempt status
The proposed regulations would increase the salary threshold for executive, administrative, and some professional exemptions from its current $455 a week ($23,660 per year) to $679 a week ($35,308 per year).
The DOL officially rescinded the overtime exemption rule issued in 2016 during the Obama Administration and later enjoined by a court, which had set a salary threshold of $913 a week, or $47,476 annualized.
According to an Executive Summary included by the DOL with the proposed regulations,
In light of the district court’s decisions, public comments received in response to a July 26, 2017 Request for Information (RFI), and feedback received at public listening sessions the Department held around the country to receive additional public input on issues related to the salary level test, the Department agrees with the vast majority of RFI commenters that the standard salary level needs to exceed [the current] $455 per week to more effectively serve its purpose. But the Department now also believes that increasing the standard salary level to $913 per week was inappropriate.
The Executive Summary then notes that the DOL proposes to “simply [update] the 2004 standard salary level by applying the same methodology to current data.”
The DOL arrived at the proposed salary level of $679 a week by applying the 2004 methodology to 2017 data, and projecting to January 2020 (the projected effective date of a final rule).
However, the DOL cautioned that it will be using 2018 data in development of the final rule.
Non-discretionary bonuses could be included in the salary
Consistent with the 2016 Obama-era regulations, the DOL would permit employers to count non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary level test ($353), provided that the bonuses are paid annually or more frequently.
Update of the “Highly Compensated Employee” test
In 2004, the DOL introduced the concept of a “Highly Compensated Employee,” who would be considered exempt if he or she made a high salary and satisfied a less-demanding “duties test.” Since 2004, the minimum salary level for this exemption has been $100,000 per year. The 2016 regulations, had they taken effect, would have increased that minimum to $134,000. In the proposed regulations issued on March 7, the DOL would use the same methodology used in the 2016 regulations, making the salary level equivalent to the 90th percentile of full-time salaried workers in the United States. Projecting this salary data to January 2020, the minimum salary level would be $147,414 per year.
Adjusting salary levels in the future
The 2016 regulations would have required that the salary levels for the EAP exemptions be automatically adjusted every three years. In the proposed regulations issued March 7, the DOL would update the levels every four years but only through notice-and-comment rulemaking. The DOL has specifically asked for public comment regarding its updating proposal.
No change to duties tests
The DOL does not propose making any changes to the duties tests applicable to these exemptions.
The DOL is also proposing different salary levels for certain U.S. territories and an updated base rate for employees in the motion picture industry. The DOL has specifically requested comment on these proposals.
Puerto Rico. The DOL proposes to set a special salary level in Puerto Rico of $455 per week—the level that currently applies under federal law. (Legislation exempted Puerto Rico from the standard levels that would have applied under the 2016 regulations.) The DOL is seeking comments on this proposal.
Virgin Islands, Guam, and the Commonwealth of the Northern Mariana Islands. The DOL also proposes to set a special salary level of $455 per week for the Virgin Islands, Guam, and the Northern Mariana Islands.
American Samoa. The DOL is proposing to set a special salary level of $380 per week in American Samoa. “This approach not only maintains the special salary level that the Department is currently enforcing in American Samoa, but also ensures that American Samoa, which has a lower minimum wage than the other U.S. territories, does not have a higher special salary level.”
Motion picture producing industry. Since 1953, the DOL has permitted an exception from the salary basis regulations to address the “peculiar employment conditions existing in the [motion picture producing] industry.” This exception permits employers to classify as exempt employees in the motion picture producing industry who are paid a specified base rate per week (or a proportionate amount based on the number of days worked), so long as the employees meet the duties tests for the EAP exemption. The exception applies, for example, “when a motion picture producing industry employee works less than a full workweek and is paid a daily base rate that would yield the weekly base rate if 6 days were worked.”
The proposed regulations would increase the required base rate proportionally to the proposed increase in the standard salary level test, resulting in a proposed base rate of $1,036 per week (or a proportionate amount based on the number of days worked).
Once the proposed regulations are published in the Federal Register – probably next week – the public will have 60 days from the publication date to submit comments.