U.S. Department of Labor Proposes New Overtime Rule

Reprinted with permission from National Council of Nonprofits.

The U.S. Department of Labor released its proposed rule updating the overtime salary threshold under the federal Fair Labor Standards Act, reopening rulemaking on an issue that has drawn significant attention and controversy over the past four years. The salary threshold for the white-collar exemption from overtime pay would rise to more than $35,000 per year under the draft rules.

This rate would be nearly 50 percent higher than the current level that was last updated in 2004, but only half as much as the increase approved by the Obama administration in 2016 (to $47,476/year) that was blocked by a federal court. The newly proposed regulations would also raise the salary threshold for highly compensated employees who are exempt from overtime pay requirements from $100,000 per year to $147,414 per year (which is higher than the proposed increase in 2016).

At issue is the provision of the federal Fair Labor Standards Act that exempts certain employees from the requirement that they receive time and a half overtime pay for work beyond 40 hours in a week. The salary threshold is one of three tests that must be met before an employee can be deemed “exempt”; each exempt employee must (1) be paid on a salary basis; (2) be paid at least the salary threshold set forth by DOL; and (3) satisfy a duties test as being an executive, administrative, or professional worker. The newly released draft regulations do not change the salary basis or duties tests; only the salary threshold is at issue.

Impact on Nonprofits

The Labor Department estimates that about seven percent of nonprofit employees nationally will be affected by the higher salary threshold (compared to five percent of for-profit employees). See the initial analysis from the National Council of Nonprofits. Nonprofits are encouraged to review the proposed regulations and make a mission-based analysis of whether and how the draft rules will affect their ability to attract and retain workers and advance their missions. The Labor Department is inviting public comments (RIN 1235-AA20) through approximately May 13, 2019.