Key Issues

Department of Labor Proposes Changes to “White Collar” Overtime Pay Exemptions

March 25, 2019 (WASHINGTON INSIDER ALERT) - On March 22, 2019, the U.S. Department of Labor (DOL)’s Wage and Hour Division (WHD) published in the federal register proposed changes to the Fair Labor Standards Act (FLSA)’s federal overtime pay requirements governing exemptions for executive, administrative and professional ("white collar") employees. Specifically, DOL has proposed raising the salary threshold by using the same formula it employed for the last adjustment in 2004. This would raise the threshold from the current (2004) level of $455 per week or $23,660 annually to $679 per week or $35,308 annually.

DOL also has asked for comments on whether the regulations should require every four years an update to the salary threshold using the 2004 formula through notice-and-comment rulemaking. The Secretary could suspend any update based on the economic circumstance or for other reasons, or propose a new formula for updates or other changes to the regulations. The department did not propose any changes to the existing “duties test.”

CUPA-HR supports DOL’s decision to update the salary threshold by applying the methodology used in 2004 to current salary data and its decision not to make any changes to the duties test. We believe, however, that DOL should prorate the salary threshold for part-time employees and allow employers to count the cost of employer-provided room and board toward the salary threshold. While we support DOL’s decision to update the threshold only via notice and comment, we believe DOL should update the regulations every five to seven years based on circumstance, as it did prior to the 1970s. We also are concerned that any automatic update — even one that involves notice and comment — may exceed DOL’s authority under the FLSA and, therefore, will be susceptible to legal challenge.

CUPA-HR will be submitting comments on DOL’s proposal, which are due May 21, 2019. If you have thoughts on the proposal or CUPA-HR’s position on the proposal that you would like to share, please use this form to email our government relations team by May 15. If you or your institution would like to file comments with DOL, you can do so via the federal government’s online portal.

More information about the overtime regulation, recent proposals to modify the regulations and CUPA-HR’s related advocacy efforts are set forth below.

Background

The FLSA, which was enacted in 1938, requires employers to pay their employees at least a minimum hourly wage, which is set by the statute, and an “overtime” rate of 1.5 times the employee’s regular hourly wage for every hour the employee works over 40 hours in a given week. The statute exempts certain categories of employees from these requirements, including executive, administrative and professional employees (sometimes referred to the “eap” or “white collar” exemption). The FLSA tasks the DOL with defining executive, administrative and professional employees by regulation and requires the department to revisit these definitions from “time to time.” Under current regulations, these “white collar” employees are exempt from the FLSA’s overtime and wage requirements if they are paid a salary (salary basis test) of at least $455 per week or $23,660 annually (minimum salary requirement), and primarily perform responsibilities that DOL considers customary of professional, executive and administrative work (duties test). The minimum salary requirement was last updated in 2004.

On June 30, 2015, DOL proposed increasing the overtime threshold to $50,440 per year, a 113 percent increase that would have occurred all at once in 2016 and in all areas of the country regardless of significant regional economic differences. DOL also proposed automatic annual increases to the salary threshold by tying it to one of two indexes (this is the first time since the FLSA was signed into law in 1938 that an automatic threshold increase would be imposed by DOL).

DOL’s proposal was met with widespread concern from colleges and universities across the country and the associations that represent them that submitted comments and economic analysis, wrote letters to Congress, and met with administration officials to advocate for positive changes that would lessen the negative impact of the many unintended consequences associated with the proposed rule. CUPA-HR lead these efforts.

Despite our concerns, on May 18, 2016, DOL issued a final rule increasing the salary threshold from $23,660 to $47,476 — a 100 percent increase and only slightly less than its original proposal. The new rule would have also required automatic updates to the threshold every three years. The final rule would have required mass reclassification of professionals in thousands of positions at institutions of higher education that clearly meet the duties test for exemptions but are paid less than $47,476.

On November 22, 2016, a federal court in Texas temporarily enjoined DOL from enforcing the new regulation. The court issued a decision permanently enjoining the rule on September 1, 2017. In response, DOL issued a Request for Information (RFI) on June 26, 2017, seeking comment about how DOL should go about updating the overtime regulations in light of the court’s ruling.

On September 25, 2017, CUPA-HR, in partnership with 20 other higher education associations, filed substantive comments on the RFI. These comments highlighted our belief that an increase to the salary threshold is due and outlined what we believe to be DOL’s best course of action moving forward.