On March 7, 2019, the Department of Labor (DOL) issued a Notice of Proposed Rulemaking (NPRM) that would increase the minimum salaried basis threshold required to be paid to employees under the white collar exemptions (e.g., executive, administrative, and professional).
Under current regulations, to avoid paying overtime, employers must pay employees at least $455/week ($23,660/year) and establish that the employee meets the duties tests of the specific exemption. The DOL established the current salary threshold in 2004. The DOL attempted to increase the salaried basis threshold to $913/week ($47,476/year) in 2016. However, the United States District Court for the Eastern District of Texas declared that rule invalid. The DOL appealed that ruling, but the appeal was being held in abeyance, meaning that the appeal has been temporarily suspended so that the DOL could determine an appropriate new salary threshold.
In the March 7, 2019 NPRM, the DOL proposes to rescind the 2016 increase and replace it with a new rule that accounts for a “minimum weekly salary level to reflect growth in wages and salaries and allow the inclusion of certain nondiscretionary bonuses and incentive payments to count towards up to 10 percent of the standard salary level.” In developing this proposal, the DOL considered the more than 200,000 comments it has received both as part of a 2017 Request for Information and during its six in-person listening tours.
The DOL proposes that the new threshold be established under the same basis as the 2004 salary level. Specifically, the 2004 final rule set the standard salary level at approximately 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. Using this same methodology and projected to January 2020, the current salary threshold would be $679/week ($35,308/year). Additionally, the DOL NPRM would allow employers to count 10% of incentive compensation/bonuses toward the salaried basis threshold.
Further, the DOL seeks to increase the Highly Compensated Employee (HCE) test, which pairs a reduced duties requirement with a higher compensation level (currently $100,000). The DOL uses the same methodology used in the 2016 final rule for the HCE test: the 90th percentile of full-time salaried workers nationally, again projected forward to 2020 (which will be $147,414/year).
Comments are due by the sixtieth day following publication of the NPRM in the Federal Register.
Employers should remember that both California and New York already impose higher salary thresholds to meet their state law exemptions. Employers should also watch for an increase in Washington state within the next thirty days (expected to be on a multiple of minimum wage) and keep an eye on Pennsylvania which is also considering legislation to raise the salary threshold.