It’s Back – New Federal Overtime Rule Proposed

On March 7, 2019, the U.S. Department of Labor (DOL) announced a new proposed federal overtime rule that would increase the white-collar salary threshold for exempt executive, administrative and professional employees from $23,660 to $35,308 per year. According to the DOL, this increase could result in more than a million additional American workers eligible for overtime compensation.

Wait, I Have a Feeling of Déjà Vu

Yes, you do. In March 2014, then-President Barack Obama directed the Secretary of Labor to begin creating new federal overtime rules, and by June 2015, the DOL announced their proposed rule. During the comment period, the proposed rule received 293,370 comments, compared to 75,280 comments received during the previous changes to the overtime rule in 2004. The final overtime rule was set to go into effect on December 1, 2016.

Before that happened, 21 states and a coalition of more than 50 businesses filed separated lawsuits challenging the rule, and a court issued a nationwide preliminary injunction blocking it. In September 2017, a federal judge struck down the new federal overtime rule, finally putting an end to the controversial new rule.

Meanwhile, in July 2017, the new administration directed the DOL to issue a Request for Information to gather more input on the overtime rule and aid the department in formulating a proposal to revise these rules.

How Is This Rule Different?

Currently, under federal law, employees with a minimum salary of $455 per week ($23,660 annually) or more may qualify for the Fair Labor Standards Act’s (FLSA) executive, administrative and professional exemption (as long as they also meet the duties test). The new proposed rule raises the salary level to $679 per week ($35,308 annually). Therefore, employees who do not earn the minimum salary threshold will no longer qualify for these exemptions and must be paid overtime compensation.

The proposal also increases the total annual compensation for “highly compensated employees” from $100,000 per year to $147, 414 per year, and allows employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid annually or more frequently to satisfy up to 10 percent of the standard salary level.

The proposed rule does not include:

  • Changes to the job duties test; and
  • Automatic adjustments to the salary threshold.

Yes, But I Am in California

California’s current minimum annual salary threshold ($49,920 per year for employers with 26 or more employees; $45,760 for employers with 25 or fewer employees) is higher than the current federal threshold ($23,660 per year). Under the proposed rule, both of California’s current minimum annual salary thresholds would still be higher than the proposed federal threshold ($35,308 per year).

California employers must continue to meet California’s salary requirements and stricter duties test. The California Division of Labor Standards Enforcement (DLSE) indicates that although differences exist between state and federal exemption standards, the federal regulations can serve as a guide where there is no conflict.

How Do I Find More Information?

The U.S. DOL has an Overtime Pay website, which includes a Fact Sheet and Frequently Asked Questions. Once the proposed rule is published in the Federal Register (RIN 1235-AA20), the public will have 60 days to submit comments. Stay tuned to HRWatchdog to know when comments open.

Katie Culliton, Editor, CalChamber

CalChamber members can read more about Determining Exempt or Nonexempt Status in the HR Library. Not a member? See what CalChamber can do for you.

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