The U.S. Department of Labor (the “DOL”) has released proposed rules increasing the minimum salary threshold for the so-called “white collar” exemption under the FLSA to $35,308 a year, or $679 per week. The “white collar” exemption applies to executive, administrative, professional, outside sales, and computer employees, and exempts them from overtime compensation. Under the proposal, employers would be allowed to use nondiscretionary compensation, like bonuses, incentives, and commissions, to account for up to 10% of the employee’s overall compensation to meet the new income thresholds, which are paid at least annually, and allow a final “catch-up” payment to be made, if necessary, to make up for shortfalls to the 90 percent of the weekly minimum level paid over the course of a year. The new proposal also raises the annual compensation for “highly compensated employees” from $100,000 to $147,414. The new rule would replace current salary threshold of $23,660 a year, or $455 per week. This proposal will have a special impact on New Jersey employers because New Jersey follows federal law with respect to the exemptions applicable under New Jersey’s wage and hour laws.
The Bottom Line: Employers should immediately review the compensation of their white-collar employees to identify those who will or may be below the proposed threshold. It would also be an excellent time to do an audit to determine whether certain white collar employees are misclassified as exempt when, in fact, they are non-exempt under existing law and regulation. Prepare now; don’t wait until this proposed rule is finalized and implemented. The penalties for violating state and federal wage and hour laws, in terms of both unpaid overtime and fines, are substantial.