DOL Issues Proposed Changes to Threshold of Salary Basis Test – $970/week from $455/week

01 July 2015 Labor & Employment Law Perspectives Blog
Authors: Carrie Hoffman

Today, the U.S. Department of Labor issued proposed revisions to the minimum salary level that an employer must pay for an employee to be considered exempt under the Fair Labor Standards Act (FLSA). These long awaited revisions would, according to DOL estimates, increase overtime eligibility for approximately 4.6 million employees who are currently classified as exempt.

Under its proposed rules, the DOL sets the salary threshold for the white-collar exemptions at the 40th percentile of weekly earnings for full-time salaried workers nationwide. For 2013, using data from the Bureau of Labor Statistics, that figure was $921 per week, or $47,892 per year. The DOL anticipates that when its Final Rule goes into effect in 2016, the salary level will be $970 per week, or $50,440 per year.

The DOL further proposes that the salary level would be automatically updated annually. The DOL believes that this will make further rulemaking on this issue unnecessary and allow the salary level to keep pace with inflation. The DOL further solicited comments on whether non-discretionary bonuses should be included in the analysis of whether the salary level test has been met. Traditionally, such bonuses are disregarded in the determination of whether the salary level has been met.

The DOL also proposes to raise that salary threshold for highly compensated salaried workers. Currently, that compensation level is set at $100,000 annually. The new proposal sets the salary level of highly-compensated employees at the 90th percentile, which was $122,148 per year for 2013. That number will likely be higher by the time the Final Rule is implemented. This salary requirement would also adjust automatically to the level equal to the 90th percentile of earnings for full-time salaried workers.

The DOL believes that further changes to the specific duties tests required under the executive, administrative and professional exemptions are unnecessary given the increase in the minimum salary level and its proposal for automatic annual updates. However, the DOL did invite comment on whether revisions are needed to these tests. By way of example, the DOL suggested that the exemptions regulations should be amended to impose a more stringent rule requiring the employee to perform exempt duties more than 50 percent of the time (like the exemption rules in California).

Those interested in providing comment to the DOL on these proposals must do so within 60 days of June 30, 2015. Such comments should be provided to http://www.regulations.gov and following the instructions for submission of comments or by mail to Mary Ziegler, Director of the Division of Regulations, Legislation, and Interpretation, Wage and Hour Division, U.S. Department of Labor, Room S-3502, 200 Constitution Avenue, N.W., Washington D.C. 20210.

After considering comments from interested parties, the DOL will decide whether to make any revisions to its proposed overtime rules and will issue its Final Rule sometime thereafter. Although the final version of the rules may change slightly, employers should begin examining whether they have employees classified as exempt who are earning less than $970/week. For those employees who earn less than the proposed new salary level, employers should begin contemplating whether to increase their compensation to ensure they will still be exempt or begin preparing to start paying overtime once the rules become final.

 

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