Revising Overtime Exemptions for Executive, Administrative and Professional Employees

Just days before Labor Day, the U.S. Department of Labor (“DOL”) unveiled its Notice of Proposed Rulemaking (“NPRM”), aimed at revising the Fair Labor Standards Act’s overtime exemptions for executive, administrative, and professional employees. 

While the proposal—the cornerstone of which is a minimum salary increase to slightly more than $55,000 per year (up from $35,568)—is more measured than many anticipated, it could still have a massive impact across industries and commands employers’ attention.

The Proposed Changes

Contrary to the whirlwind of speculation, the DOL’s proposed changes are more evolutionary than revolutionary. If finalized, the changes would entail:

1. Increased salary for “white collar” employees:
   The proposed rule would increase the minimum salary level from $684 per week ($35,568 per year) to $1,059 per week ($55,068 per year). Note, however, that, as explained in the Preamble to the proposed rule, the final rule likely will provide for an even higher minimum salary level because, when the final rule is issued, it will use updated wage data.
2. Increased total compensation threshold for the “HCE” exemption:
   The proposed rule would raise the total annual compensation requirement for the highly compensated employee exemption from $107,432 to $143,988.
3. Automatic updating every three years:
   The proposed rule would implement a triennial automatic update to these thresholds, designed, the DOL says, to align with shifts in worker salaries and provide employers with a predictable timetable for future adjustments.
4. Additional updates for certain territories and industries:
   The DOL proposes to update salary levels in U.S. territories and for employees in the motion picture industry.

Notably, the proposed changes would leave the “duties” tests for the exemptions untouched.

The NPRM’s Road Ahead

If the new rules are not subjected to any other delay—whether because of court or congressional challenges—employers would most likely be provided between 60 and 90 additional days to prepare for the rules’ official effective date, which could become law as early as May of this year.

With respect to court challenges, it is worth remembering that the Obama Administration’s 2016 attempt to overhaul these exemptions in a similar fashion—i.e., an increased salary threshold with automatic, inflation-based increases—was stymied by legal challenges and never came into effect. The DOL’s new proposal is not immune to similar challenges, particularly as we approach another election cycle where compensation issues often become political footballs.

Next Steps for Employers

While it is possible that a final rule will look different in some ways than the proposed rule, businesses should not wait to start planning. At a minimum, it is important for employers to develop an accurate picture and understanding of their exempt workforce—i.e., what roles it comprises, how many incumbents occupy the roles, where they are located, what functions they perform, and, of course, how much they are paid. 

Understanding the contours of the exempt population will allow employers to begin thinking strategically to identify and triage the roles that are most likely to be impacted by the new rule or that otherwise command attention during this time of change.

In short, while the DOL’s proposed changes may not be the seismic shift some had predicted, they nonetheless represent a significant evolution in this area of the law that employers will need to plan for, monitor, and be ready to act upon.