Part 541 Overtime Rule, Round 2: How the New NPRM Differs From the 2016 Proposal

On March 7, 2019, the U.S. Department of Labor (DOL) Wage and Hour Division (WHD) announced the release of its Notice of Proposed Rulemaking (NPRM) to revise the regulations defining who is an executive, administrative, professional, outside sales and computer employee exempt from the overtime and minimum wage protections of the Fair Labor Standards Act (FLSA). This NPRM—“Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees”—will be published in the Federal Register in March 2019.

The NPRM is significant both for what it proposes as well as for what it does not propose to accomplish, among other things. As for what the NPRM proposes, the Labor Department states it would:

• rescind the 2016 final rule;
• increase the standard salary level to $679 per week or $35,308 per year for exempt executive, administrative, professional and computer employees;
• increase the total compensation amount for highly compensated employees (HCE) to $147,414 per year, “of which at least $679 must be paid weekly on a salary or fee basis”;
• allow nondiscretionary bonus and incentive payments, including commissions, to satisfy up to 10 percent of the standard salary level test proposed as $679 per week/$35,308 per year;
• establish a more generous timeframe in which these nondiscretionary payments must be made to an annual or more frequent basis;
• establish a standard salary level test of $455 per week for the Commonwealth of the Northern Mariana Islands, Guam, Puerto Rico or the U.S. Virgin Islands and $380 per week for American Samoa; and
• provide that the salary basis requirement would not apply to employees in the motion picture producing industry who make at least $1,036 per week.

In the category of what the NPRM does not do, there are a number of equally significant developments, including the following:

• The NPRM does not propose changes to the standard duties tests for the executive, administrative, professional, outside sales, or computer employee exemptions.
• The NPRM does not include a provision that automatically would increase the standard salary level test or total compensation for highly compensated employees on some regular or other periodic basis.
• The NPRM does not allow nondiscretionary bonus or incentive payments to count towards meeting the total annual compensation amount for highly compensated employees.

In the NPRM, the DOL/WHD expresses its intent to update the standard salary level test and total annual compensation thresholds every four years through notice and comment procedures, consistent with the language of the FLSA to define and delimit these exemptions from time to time. Also, in arriving at a proposed salary level of $679 per week or $35,308 per year, the Labor Department essentially employs the same methodology that was used in the 2004 rulemaking but uses a more current data set of the pooled 2015-2017 Current Population Survey (CPS) Merged Outgoing Rotation Group (MORG), adjusted to reflect 2017. If this approach is adopted, the DOL anticipates using the 2018 data in setting the salary level in the final rule and projecting it forward to January 2020, when it anticipates that the final rule will go into effect.

This NPRM is another chapter in the long-running saga to update the Part 541 overtime exemptions. It has been some 15 years since the DOL increased the salary level test to the current $455 per week or $23,660 per year amount and set the total compensation for a HCE at $100,000. It has been almost two years since the last administration issued its overly ambitious final rule to increase the standard salary level test by almost doubling it—which a federal court enjoined. The NPRM also discusses the request for information, which DOL proposed in July 2017 and the six listening sessions, which the DOL conducted in late summer and early fall of 2018, as well as the extensive litigation involving the 2016 final rule.

The NPRM has a 60-day comment period from the date of publication in the Federal Register. The Labor Department is intent on completing the rulemaking by the end of 2019, and this is doable even if an additional 30 days were added to the comment period. As mentioned, the NPRM states on several occasions that it will use the 2018 data projected forward to January 2020, to set the salary level test when it expects the final rule to go into effect.

Ogletree Deakins’ Wage and Hour Practice Group will continue to cover the proposed rule in depth on our Wage and Hour blog, which includes a variety of resources on the Part 541 overtime regulations and is frequently updated.

Employers interested in learning more about the latest wage and hour developments can join us for a one-hour webinar, “The New Overtime Proposal: What Employers Need to Know to Prepare,” on Monday, March 18, 2019, at 2:00 p.m. Eastern. Our speakers, Washington, D.C. shareholder Alfred B. Robinson, Jr. and Greenville, S.C. shareholder Charles E. McDonald III, will explain the new overtime proposal, its impact on employers, and what the future may bring. To register for this timely program, click here.