Labor & Employment Alert: The Department of Labor Sets the FLSA Exemption Threshold at $35,308

Just a few short weeks ago, we advised you that the Department of Labor formally announced it had come up with a new version of the overtime regulations addressing exemptions from the overtime requirements. As the law currently stands, workers are only exempt from minimum wage and overtime pay if they are “executive, administrative, professional, or outside sales” employees and they earn at least $23,660 per year (or $455 per week).

Last Thursday, the Trump administration’s Department of Labor (DOL) issued its proposed new overtime rule setting a new salary threshold of $35,308. What that means is employees with a salary below $35,308 per year (or $679 per week) have to be paid overtime if they work more than 40 hours per week. The practical effect of this change is that almost one million more American workers will become eligible for overtime.¹

This proposed rule change comes on the heels of the Obama administration’s attempt at a major rewrite of the rules for determining which employees are exempt from overtime. Recall that in May 2016 the Obama administration’s DOL issued new rules raising the salary threshold to $47,476, with automatic update provisions tied to what would have increased the salary threshold every three years. The Obama administration’s new rules became tied up in the courts through litigation; however the DOL ultimately dismissed its case.

The Trump administration's version of the salary threshold will certainly be more well-received by the business community. However, there is the likelihood that employee groups may challenge this proposed new overtime rule.

The proposed rule also seeks to increase the total annual compensation amount for employees who are deemed “highly compensated” from $100,000 to $147,414 per year. So, employees who may not meet the technical test of being considered “executive, administrative, professional, or outside sales” employees would still be exempt from overtime if they are deemed “highly compensated” by virtue of their salary alone (provided they also meet other less stringent requirements that are necessary for the “highly compensated” designation). 

If enacted, this new rule will significantly increase the number of employees eligible for overtime, but certainly not to the level that would have become eligible if the minimum salary threshold had been raised to $47,476. While there may not be agreement as to what the appropriate salary threshold should be, the consensus is that the current threshold of $23,660, which was set in 2004, is far too low. Public comments are still being solicited and the final rule may still change. Nevertheless, employers should start preparing for this change, which would go into effect on January 1, 2020.