On March 7, 2019, the Department of Labor issued a Notice of Proposed Rule Making with respect to the “white collar” exemptions to the Fair Labor Standards Act. The proposed regulation increases the minimum salary level to $35,308 per year or $679 per week from the present level of $23,660 per year or $455 per week, which was established in 2004. While the proposed increased salary level is a substantial increase from the present level, it is only half of the increase that was proposed by the Obama administration in 2016. That proposed increase to the minimum salary needed to qualify for the executive, administrative, and professional exemptions sought to establish $47,476 per year or $913 per week as the required amount. While the 2016 proposal was anticipated to affect over 4 million employees making them overtime eligible, the present proposal estimates that 1.1 million employees will be affected by this change.
As with the prior proposal, employers will be allowed to utilize non-discretionary compensation, such as commissions, to meet the minimum salary amount. However, only 10 percent of the total compensation paid may be composed of these types of payments. Also, employers will be permitted to make a “catch-up” payment in year-end if the non-discretionary payments are insufficient to hit the minimum salary amount. Further, the proposed regulation does not include an automatic increase provision as was included in the 2016 regulation, and instead any changes to the minimum salary amount would be subject to notice and comments rule-making.
It should be noted that this proposal, like the prior proposal, only deals with the salary amount needed to qualify for the exemption. The other required prong of the exemption, the “duties” requirement, is unchanged in this proposal. This is somewhat surprising in that the 2016 Obama administration proposal was struck down by a federal district court judge in Texas who found that the Department’s authority under the Act was to define the exemption in terms of the duties that the positions required as opposed to solely looking at a minimum salary level. Given this prior decision, it is anticipated that judicial challenges will be filed with respect to the proposed regulation.
Should this regulation survive judicial challenges and become effective, employers will once again need to analyze their employees classified as exempt whose present compensation is less than the $35,308 per year figure and determine whether to increase their compensation to meet this minimum amount or reclassify them as non-exempt and pay premium overtime compensation. This decision is of course affected by the amount of the salary that is needed to be boosted and the number of overtime hours typically worked by these employees. The notice provides for comments to be submitted within 60 days after which the Department will review these comments and a final rule will be published.
As the rule-making process progresses, we will keep you advised of any significant actions.
