The U.S. Department of Labor (“DOL”) has officially proposed a significant increase to the salary requirement governing which executive, administrative and professional employees are entitled to the Fair Labor Standards Act’s minimum wage and overtime pay. In order to be exempt from minimum wage and overtime, an employee must be abona fide executive, administrative or professional employee performing those functions as their primary duty and be paid on salary basis. The salary threshold was last updated in 2004. The current salary threshold for exemption is $455 per week ($23,660 per year).
The DOL’s Notice of Proposed Rule Making, issued on June 30, 2015, proposes more than doubling of that threshold to take effect in 2016. As proposed, this would raise the salary threshold from $455 a week (the equivalent of $23,660 a year) to about $970 a week ($50,440 a year) in 2016.
Key Provisions of the Proposed Rule
Specifically, the DOL proposes to:
- set the standard salary level at the 40th percentile of weekly earnings for full-time salaried workers ($921 per week or $47,892 annually);
- increase the total annual compensation requirement needed to exempt certain highly compensated employees to the annualized value of the 90th percentile of weekly earnings of full-time salaried workers ($122,148 annually); and
- establish a mechanism for automatically updating the salary and compensation levels going forward to ensure that they will continue to provide a useful and effective test for exemption.
Heads-Up for Employers
The DOL has established a 60-day comment period on the revised regulations. It may be months before the threshold is actually increased, but employers whose exempt employees are paid an annual salary of less than $50,000 should be thinking about the future. Either increase the employee’s salary in order to retain the exemption or consider the employee non-exempt and prepare to pay overtime.