Last week, the United States Department of Labor (DOL) issued its long-awaited proposed change to the minimum salary threshold for the white-collar exemptions under the Fair Labor Standards Act. The new minimum salary threshold is $35,308/year (or $679/week).
This new rule is not finalized nor in effect now. Rather, the new rule is open for a notice and comment period, with the DOL accepting public comments for 60 days after the rule is published in the Federal Register. The Department of Labor predicts that the new rule will likely become effective in January 2020.
So, while you have some time to plan, here are the key points to understand from the new rule:
- The minimum salary threshold for all white-collar exemptions is moving to $35,308/year (or $679/week). The current level is $23,660/year (or $455/week). There are no changes to the duties portion of the tests for the various white-collar exemptions, which still have to be met for an employee to be exempt from overtime; only the minimum salary threshold is changing.
- The minimum salary threshold for highly compensated employees is moving to $147,414/year, a significant increase from the current level of $100,000/year.
- There are no automatic increases or regional differentiators built into the new rule (as some predicted). The DOL will, however, evaluate the threshold every four years.
- Employers will be allowed to meet the new minimum threshold with non-discretionary bonuses and incentive payments (g., commissions) for up to 10% of the new threshold amount.
Employee advocate groups have called for an increase to the threshold for years, especially since it has not been increased in 15 years. However, the new rule is not nearly as high as the $47,000/year threshold previously proposed by the Obama administration.
This new rule will almost certainly be challenged in court by business groups citing increased payroll costs for employers. At the same time, other groups representing employees will also probably challenge the rule in court, arguing that the increase is not high enough to protect workers.
Our readers will probably recall that the Obama administration’s proposed rule was blocked by a U.S. District Court in 2017, and that decision is still on appeal. The District Court, in that case, held that the DOL’s white-collar exemptions rules focused less on the duties portion of the tests (as set forth specifically in the Fair Labor Standards Act itself), and more on the salary threshold (which is not specifically set forth in the FLSA). Whether the new salary threshold functionally diminishes the importance of the duties tests will likely be addressed in the expected litigation around the DOL’s new rule.
In the end, we now have some guidance on what the current DOL intends to do. While it may be a while before the rule goes into effect (and while litigation may occur), employers can now evaluate how the rule will affect their workforce and make proper decisions to address the changes to which employees will continue to be considered exempt from overtime.