The Department of Labor recently announced some new minimum salaries for exemption from overtime under the Fair Labor Standards Act. Currently, in order to be exempt from overtime you need to meet the duties test and earn at least $23,660 per year ($455 weekly). This salary has been in place since 2004, so it seems like a good time to make a change. Additionally, the definition of highly compensated employees is changing from $100,000 per year to $147,414.

The Obama administration attempted a change in 2016, to $47,476 but it got shot down by a federal judge and the Trump administration didn't push the issue. Here's why it's probably going to go through this time.

No Change in Methodology

This time around the Department of Labor used the same methodology they used in 2014 to determine the new salary levels. Employment attorney Brian Murphy explains:

The USDOL arrived at the $679 per week amount by utilizing the same methodology used in setting the threshold in 2004: aligning it to the 20th percentile of earnings of full-time salaried workers in the lowest-wage census region (then, and now, the South) and in the retail sector. Similarly, the USDOL proposed the $147,414 threshold for highly-compensated employees by aligning it with the 90thpercentile of full-time salaried workers nationally. These amounts were also informed by over 200,000 comments received by the USDOL and listening sessions conducted by the USDOL in all five wage and hour regions throughout the country.

So, roughly speaking, the new salaries are equal to the old salaries in 2004. That makes it far more likely for judges to uphold and companies not to balk.

The Duties Test Doesn't Change

In order to be considered exempt from overtime, you have to earn a minimum salary and meet job duties. These proposed changes don't affect these jobs description requirements. While the actual duties can be a bit complex, a quick summary includes people who:

  • Manage two or more people and have duties that primarily managerial. In other words, a fast food shift manager who spends 90 percent of her shift running a cash register and making burgers doesn't qualify as exempt even if her title is manager.
  • Be a "professional" employee, like an accountant (CPA), doctor, or lawyer. These positions are considered learned and independent.
  • Be an administrative professional. This is not an administrative assistant--this position is almost always eligible for overtime. These are positions like finance, HR, and IT, who don't manage people but do manage functions or projects and work largely independently. 
  • Outside sales professionals. These people leave the office to sell things. Call center or other inside sales positions don't qualify.

So, if you don't meet this exemption, it doesn't matter if you earn $75,000 a year, you're still eligible for overtime

What's a Highly Compensated Employee?

While we talk a lot about exempt vs non-exempt with minimum salary requirements, we also need to look at highly compensated employees and why they matter. This is where the duties test falls away. If someone earns $100,000  then you don't have to pay them overtime as long as they meet a few qualifications But, under the new rules, this salary jumps to $147,414. This probably doesn't affect your life.

It will be interesting to see if this gets held up in court, but I expect it will go through.

Published on: Mar 12, 2019
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