Department of Labor Provides Limited Increase in Overtime Pay Threshold

In September 2019, the Department of Labor (“DOL”) announced a final rule which will increase the annual salary amount to qualify for certain exemptions under the Fair Labor Standards Act (“FLSA”).  Pursuant to the FLSA, salaried employees are not entitled to overtime pay if they, inter alia, earn more than the salary threshold, which is periodically adjusted by the DOL.  The newly announced rule, which is slated to take effect on January 1, 2020, provides that employees who make less than $35,568 per year (or less than $684 per week) are eligible for overtime pay.

The FLSA requires employers to provide employees overtime pay of at least one and a half times their regular rate of pay for every additional hour an employee works over 40 in a given week.  The FLSA exempts certain employees from the overtime pay requirement, including those who are “employed in a bona fide executive, administrative, or professional capacity” (colloquially, “EAP employee(s)”).  The DOL, tasked with establishing regulations to implement the FLSA’s statutory mandates, has required that an employee have three characteristics in order to be classified as an exempt EAP employee: (1) an EAP employee must be paid a predetermined and fixed salary not dependent on the number of hours worked (“salary basis requirement”); (2) an EAP employee’s job duties must involve executive, administrative, or professional duties (“duties requirement”); and (3) an EAP employee must be paid a certain threshold amount (“salary level requirement”).  The newly-promulgated rule specifically raises the salary level requirement amount from $23,660 to $35,568 annually.

The DOL’s rule is long overdue, as the last adjustment to the salary threshold was promulgated in 2004, during the Bush administration.  However, while the increased salary threshold was necessary, it is bound to disappoint workers.  In 2016, during the last year of the Obama administration, the DOL published a final rule which would have raised the salary level requirement threshold to $47,476 annually ($913 weekly).  The 2016 final rule was challenged in the U.S. District Court for the Eastern District of Texas, initially enjoined, and subsequently struck down.  The court invalidated the proposed 2016 rule because it made status as an EAP employee too dependent on the salary level requirement, making the salary basis and duties requirements less important.  Nevada v. U.S. Dep’t. of Labor, 275 F. Supp. 3d 795, 806 (E.D. Tex. 2017).

The new 2019 rule was determined in accordance with the 2004 rule in that it sets the salary level requirement threshold to an amount equal to the 20th percentile of salaried employees’ earnings in the country’s lowest-wage region, the South.  The DOL recognized that the salary level requirement amount will likely be too low in the later years of the 2019 rule’s applicability (i.e., the 2004 salary level requirement threshold is obviously too low in 2019), but justifies setting the salary level requirement threshold at the currently-proposed level by claiming it will cause minimal disruption to the economy and will reduce the potential legal vulnerability which led to the demise of the 2016 proposed rule.

Most employer groups tend to agree with the DOL’s reasoning behind its limited increase in the salary level requirement threshold.  However, employee representatives claim that the salary limit in the 2019 final rule is too low and inconsistent with the purpose of the FLSA and EAP exemption.  Namely, they contend that the rule will result in the exemption of lower-wage workers with limited bargaining power.  Others have voiced concern that the lower salary level threshold will increase the potential for employee misclassification.  Furthermore, projections indicate that the 2019 rule will result in 2.8 million fewer overtime-eligible employees than the 2016 rule.  While any increase in the salary level requirement amount is necessary, the limited increase will likely result in over-exemption in the coming years.

The legal team at SFMS has substantial experience litigating employment matters.  If you have any questions regarding this subject or this posting, please contact John Roberts (jroberts@sfmslaw.com) or Alec Berin (aberin@sfmslaw.com).  We can also be reached toll-free at 866-540-5505.

Shepherd, Finkelman, Miller & Shah, LLP, is a law firm with offices in California, Connecticut, Florida, New Jersey, New York, and Pennsylvania.  SFMS is an active member of Integrated Advisory Group (www.iag.global) which provides our firm with the ability to provide our clients with access to excellent legal and accounting resources throughout the globe.  For more information about our firm, please visit us at www.sfmslaw.com.

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