About That Salary Level . . .

This week, we focus on WHD’s proposed rule increasing the salary threshold for exempt status. As you probably recall, the previous regulation increasing the level was enjoined by a federal court in 2016. As a result, WHD continues to enforce the 2004 salary level—$455 per week ($23,660/year).

Historically, the salary threshold has been a dividing line between nonexempt and potentially exempt employees, excluding from exemption many employees based on an assessment that employees compensated below the salary threshold are very unlikely to be employed “in a bona fide executive, administrative, or professional capacity.” Of course, employees who earn more than the salary threshold are not automatically exempt—they still must meet the duties test(s). Thus, the salary threshold should be set at a level that screens out clearly nonexempt employees, but does not improperly exclude individuals whose duties would meet the standard for exemption.

WHD’s current proposal is premised on its understanding that the “vast majority” of interested parties are in agreement that the salary threshold is in need of an increase from the 2004 level. To help inform WHD’s rulemaking, we are seeking your input on some questions related to WHD’s proposal to increase the salary level to $679 per week ($35,309/year).

  • Given the salary threshold’s purpose (as described above), is $35,308 an appropriate salary threshold?
  • If not, is it too high? Too low? Why?
  • If the proposal was adopted at $35,308, are there particular positions in your industry that are likely to be impacted (i.e., are there groups of currently exempt employees who will fall below the new figure)? Please identify the position/industry/geographic region.

WHD also proposes to allow employers to satisfy up to 10% of the salary threshold in bonuses/commissions/incentive payments. Under the proposal, an employer would need to pay $611.10 or more per week on a salary basis. Throughout the course of the year, an employee would also earn commissions, bonuses, and/or other incentive payments. At the conclusion of the year, the employer would total these other payments, and, to the extent they fell short of $3,530.80 (i.e., the $35,308 threshold less the $31,777.20 required to be paid as a salary), the employer would need to make a “catch-up” payment at the end of the year. As proposed, employers would have one pay period to make any necessary catch-up payment.

With respect to the 10% commission/bonus provision:

  • Do you envision that your business might avail itself of this option with respect to any employees?
  • If yes, please identify the positions, industries, and geographic regions.
  • If not, would you use the provision if the commissions/bonuses could represent a higher percentage of compensation?
  • If not, what percentage would make it attractive?
  • Is one pay period a sufficient amount of time to reconcile the annual commission/bonus payments and make any necessary catch-up payments?
  • If not, how long would be necessary?