Trump Administration’s Proposed Overtime Rule Would Reclassify a Significant Number of Exempt Employees

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Today, Pillsbury attorneys Julia Judish and Rebecca Carr Rizzo published their Client Alert titled How Employers Should Respond to the Trump Administration’s Proposed Overtime Rule.  The Alert discusses the Trump Administration’s Notice of Proposed Rulemaking (NPRM) for amending the federal Fair Labor Standards Act (FLSA) so-called “white collar” exemptions. The new rule would formally rescind the Obama Administration’s 2016 Final Rule.

The Obama Administration 2016 Final Rule would have more than doubled the minimum salary level for executive, administrative, and professional employees to be classified as exempt from overtime and minimum wage requirements (the EAP exemption) and increased the minimum salary level by a third for highly compensated employees (the HCE exemption), with automatic increases every three years (the “2016 Final Rule”).

Key provisions of the NPRM include:

  • Increase the minimum salary required for the EAP exemption from $455/week or $23,660 annually to $679/week or $35,308 annually, calculated based on the 20th percentile of wages for full-time salaried employees in the lowest-wage Census Region.
  • Increase the minimum total annual compensation for the HCE exemption from $100,000 annually to $147,414 annually, calculated based on the 90th percentile of wages for full-time salaried employees nationally.
  • Allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the minimum salary required for the EAP exemption, provided these payments are made on an annual or more frequent basis.
  • Allow employers to make a final “catch-up” payment within one pay period after the end of each 52-week period to bring an employee’s salary to the required level for the EAP exemption. Employers would be required to pay exempt EAP employees at least 90% of the minimum salary level each pay period but could make up the shortfall in a catch-up payment in order to qualify the employee for the exemption.
  • Update the EAP and HCE required salary levels every 4years through notice-and-comment rulemaking.
  • Apply a special salary level to Puerto Rico, the Virgin Islands, Guam, and the Commonwealth of the Northern Mariana Islands, a separate salary level to American Samoa, and an updated special weekly base rate to the motion-picture industry.