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DOL Proposes New Salary Threshold Rules for White Collar Overtime Exemptions

Claudia D. Orr
Rapid Report
March 14, 2019

The U.S. Department of Labor (DOL) issued  a new proposed rule on the salary thresholds for white collar exemptions.

In 2016, the DOL issued controversial overtime regulations increasing the minimum rate for the “white collar” exemptions (for executive, administrative and professional employees) to $913 a week from $455 where it had been since 2004. 

Employers everywhere scrambled to determine which employees they would continue as exempt and which would become hourly and, therefore, entitled to overtime. Shortly after department officials finalized their decisions and announced the changes, a federal district court deep in the heart of Texas enjoined the DOL.

The DOL appealed the decision to the U.S. Court of Appeals for the Fifth Circuit, which has held that appeal in abeyance waiting for the DOL to engage in new rulemaking with a revised threshold for the exemptions.

The proposed rule would set the new threshold at $679 (with exceptions for employees in the Commonwealth of the Northern Mariana Islands, Guam, Puerto Rico and the U.S. Virgin Islands). The new rule virtually cuts in half the difference between the current $455 and the $913 that was struck in 2016. The new “highly compensated employee” salary would increase to $147,414.

There remain several provisions from the 2016 failed attempt. For example, the “catch-up” at the end of the year if the highly compensated employee falls short of the $147,414 and for allowing up to 10 percent of the salary of this exempt employee to be satisfied through the payment of “nondiscretionary” bonuses, incentives and commissions that are paid annually or more frequently. 

The employer would need to designate the 52-week period in advance and make the final payment the following pay period. Thus, if the employer supplemental payment falls short at the end of the calendar year, the employer can make one final payment the first pay period in January to satisfy the new threshold. That payment would count towards the prior year’s “salary” amount, and not the year in which it was paid. Of course, unless the DOL changed the tax code, it would probably be reported on the W-2 for the tax year in which it was actually paid.

The new proposed rules also provide for the “minimum guarantee plus extras” found in the 2016 rule, which allows the employer to pay the $679 weekly threshold and provide additional compensation for additional hours worked beyond the normal work hours on any basis, including straight-time, time and one half, flat sum, etc. without losing the exemption.

In addition, the exempt employee’s wages could be computed on an hourly, daily or shift basis without violating the salary basis requirement, provided the employee is also guaranteed the minimum weekly required amount paid on a salary basis, regardless of the number of hours, shifts or days worked and there is a reasonable relationship between the guaranteed amount and amount actually paid.

One peculiar caveat addresses employees in the motion picture industry who still would not have to be paid on a salary basis provided the employee is compensated at a base rate of not less than $1,036 per week up from $679 a week.

Remember, the proposed rule is not etched in stone. It is just a proposal for public comment.

If you care to comment on the proposed rule, you have 60 days to submit your comments through the Federal eRulemaking Portal or by mail to Melissa Smith, Director of the Division of Regulations, Legislation, and Interpretation, Wage and Hour Division, U.S. Department of Labor, Room S-3502, 200 Constitution Avenue, NW, Washington DC, 20210.

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