Benefit News

DOL Issues New Proposal on Overtime Exemptions

March 19, 2019

The Department of Labor (DOL) recently issued a proposed rule that would change the salary thresholds for the "white collar" overtime exemptions under the Fair Labor Standards Act (FLSA). The FLSA requires virtually all employers in the United States to pay overtime wages to employees who work more than 40 hours in a workweek. However, exemptions exist for executive, administrative, and professional employees (EAPs) and highly compensated employees (HCEs).

Under the proposed rule, the minimum salary level for EAPs would increase from $455 to $679 per week ($35,308 per year). This is significantly lower than the $913 salary level set in the 2016 final rule (which never took effect due to an injunction).

This proposed rule would also allow employers to use non-discretionary 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 minimum salary level for highly compensated employees (HCEs) would also increase from $100,000 to $147,414 per year (an increase from the 2016 final rule's annual threshold of $134,004).

Proposed Rule

DOL regulations have generally required each of three tests to be met for one of the FSLA overtime exemptions to apply:

  • The "salary basis test" in which the employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed
  • The "salary level test" in which the employee's salary amount must be at least as much as the standard salary level or the HCE salary level set by the DOL
  • The "duties test" in which the employee must primarily perform executive, administrative, or professional duties. If an employee's total annual salary is at least as much as the HCE salary level, the employee may meet the duties test if he or she performs at least one of the duties of an exempt EAP employee

In the 2019 proposed rule, the DOL is proposing to update both the minimum weekly standard salary level and the total annual compensation requirement for HCEs to reflect growth in wages and salaries. The DOL is also proposing revisions to the special salary levels for employees in the motion picture industry and certain U.S. territories. The DOL is not proposing any change to the "duties test," despite speculation that it would do so.

The following are key provisions of the proposed rule:

  • The standard salary level would increase to $679 per week (the equivalent of $35,308 annually for a full-year worker), up from the currently enforced level of $455 per week
  • The total annual compensation requirement needed to exempt HCEs would increase to $147,414 annually, up from the currently enforced level of $100,000 annually
  • Employers would be allowed to use non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary level, provided that these payments are made on an annual or more frequent basis. The DOL also invited comments on whether the proposed 10 percent cap is appropriate, or if a higher or lower cap is preferable
  • The proposed rule does not provide for any automatic adjustments to the salary thresholds. Instead, the DOL is asking for public comments on the proposed rule's language for periodic review to update the salary threshold. Any future update would continue to require notice-and-comment rule-making.

What This Means For Employers

These changes will not take effect until after a final rule is issued. Employers are not required to comply with the proposed rule at this time, but should become familiar with it and begin identifying which employees may be affected.

More Information

For more information on the proposed rule, see the DOL's Notice of Proposed Rulemaking: Overtime Update, which includes a fact sheet and frequently asked questions.

For additional information, please contact your Burnham Benefits Consultant or Burnham Benefits at 949-833-2983 or inquiries@burnhambenefits.com.


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