The U.S. Department of Labor has released a proposal to update the overtime rules under the federal Fair Labor Standards Act. Employers should be prepared to raise salaries to meet the minimum thresholds, pay overtime when appropriate, and otherwise adhere to the new rules if they go into effect.

Federal overtime provisions are contained in the Fair Labor Standards Act (“FLSA”). Unless exempt, employees covered by the FLSA must receive overtime pay for hours worked over 40 in a workweek. To be exempt from overtime (i.e., not entitled to receive overtime), an exemption must apply. For an exemption to apply, an employee’s specific job duties and salary must meet certain minimum requirements. The “salary test” presently requires workers to make at least $23,660 on an annual basis to be exempt from overtime.

In March 2014, President Obama directed the Secretary of Labor to update the overtime regulations in the FLSA. In May 2016, after receiving more than 270,000 comments, the Department of Labor issued a final rule that raised the minimum salary threshold to $47,476 per year. That rule was declared invalid by the United States District Court for the Eastern District of Texas, and the Fifth Circuit dismissed the Department of Labor’s appeal – at the Department’s request – in September 2017.

The Department is now proposing to formally rescind the 2016 rule and is proposing a new rule that:

• Raises the salary threshold from $455 per week ($23,660/year) to $679 per week ($35,308 per year);
• Allows employers to include “certain nondiscretionary bonuses and incentive payments” as up to 10% of the new $679 per week salary threshold; and
• Raises the total annual compensation requirement for highly compensated employees – which are subject to a minimal duties test – from $100,000 to $147,414.

The proposed rule makes no changes to the duties test for executive, administrative, and professional employees. The Department intends to propose updates to the salary levels every four years.

More information about the proposed rule is available here. Employers with salaried employees under $35,308 annually should closely monitor the development of the rule and be prepared to adjust their pay practices. If it goes into effect, the new threshold would take effect January 1, 2020.