DOL Releases Final Rule on Overtime Regulations

The Transportation Intermediaries Association (TIA) has been very active on the regulatory front regarding the Overtime Rules promulgated by the Obama Administration in 2016 that would have lifted the wage ceiling to $47,476. TIA spent a lot of political capital with Members of Congress and regulators to make sure this rule was overturned. Eventually, these rules were challenged in court and ultimately overturned and effectively put on hold. On Sept. 24, 2019, the Trump Administration’s Department of Labor released their final rule that lifts the ceiling to $35,568 per year. The current salary ceiling of $23,660 has not been increased since 2004. This final rule has been applauded by business groups throughout many different business verticals and Congressional Republicans. Congressional Democrats are not happy and obviously would have preferred the Obama era rules. The increase goes into effect in 2020.  

Background:

The Fair Labor Standards Act (FLSA or Act) requires covered employers to pay employees a minimum wage and, for employees who work more than 40 hours in a week, overtime premium pay of at least 1.5 times the regular rate of pay. Section 13(a)(1) of the FLSA, commonly referred to as the “white-collar” or “EAP” exemption, exempts from these minimum wage and overtime pay requirements “any employee employed in a bona fide executive, administrative, or professional capacity.” The statute delegates to the Secretary of Labor the authority to define and delimit the terms of the exemption. Since 1940, the regulations implementing the exemption have generally required each of the following three tests to be met:

1. 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 basis test”);
2. the amount of salary paid must meet a minimum specified amount (the “salary level test”); and
3. the employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations (the “duties test”).

The Department of Labor (Department) has long used the salary level test as a tool to help define the white collar exemption on the basis that employees paid less than the salary level are unlikely to be bona fide executive, administrative, or professional employees, and, conversely, that nearly all bona fide executive, administrative, and professional employees are paid at least that much. The salary level test provides certainty for employers and employees, as well as efficiency for government enforcement agencies.

Notice of Proposed Rulemaking (NPRM):

Following the successful court challenge of the Obama 2016 rules, on March 22, 2019 the Department of Labor published a notice of proposed rulemaking (NPRM) which followed the same standard salary level set in the 2004 rule that targeted the 20th percentile of full-time salaried workers in the lowest-wage Census region (the South) and/or in the retail industry nationally using current data. This proposed methodology resulted in a proposed standard salary level of $679 per week or $35,308 annually.

Additionally, the Department also proposed to allow employers to count nondiscretionary bonuses and incentive payments toward satisfying up to 10% of the standard salary level. Furthermore, the Department updated the formula for highly compensated employees (HCE) equal to the 90th percentile of earnings of full-time salaried workers nationally, without inflating the threshold to January 2020. This figure came out to $147,414 per year (currently $100,000). Finally, the Department proposed no changes to the standard duties’ tests.

Final Rule:

After receiving more than 116,000 comments and reviewing those comments, this final rule maintains the proposed standard salary level formula, which with current data resulted in $684 per week or $35,568 annually. The proposal to allow employers to count bonuses was maintained as well. In terms of the HCE formula it was shifted to the 80th percentile, which results in a total compensation figure of $107,432.

The Department estimates that in 2020:

• 1.2 million exempt employees who earn at least $455 per week, but less than the standard salary level of $684 per week will, without some intervening action by their employers, gain overtime eligibility.
• 2.2 million white-collar workers who are currently nonexempt because they do not satisfy the EAP duties test and currently earn at least $455 per week, but less than $684 per week, will have their overtime status strengthened; and
• 101,800 employees who are currently exempt under the HCE test will be affected by the increase in the HCE total annual compensation level.

The Department makes note that it plans to revisit these limits every four years. Note of interest the Administration views this as deregulatory action under Executive Order 13771, (which requires two rulemakings to be removed before putting one forward) because it produces an annualized cost savings of $534.8 million. 

For more information, please contact TIA Advocacy  at advocacy@tianet.org, or 703.299.5700.