Department of Labor Proposes Increase in Salary Threshold for Exempt Employees

On March 7, 2019, the United States Department of Labor (DOL) proposed a new rule that would increase the minimum salary an employee must be paid, from $455 per week ($23,660 per year) to $679 per week ($35,308 per year), in order to be exempt from the overtime requirements of the Fair Labor Standards Act (FLSA). The proposed rule, which can be found here, will apply to executive, administrative and professional employees (also referred to as “EAP” or “White Collar” employees).

To be exempt from overtime pay requirements under the FLSA, employees must generally be paid on a salary basis at or above a specified minimum weekly salary level and meet certain requirements related to their primary job duties. The DOL’s new proposed salary threshold is lower than the threshold previously proposed in May 2016 under the prior administration (which was $913 per week or $47,476 per year). The 2016 proposal was invalidated by a federal court before it could take effect. Some states have established their own minimum salaries for exempt employees that are higher than the current or proposed federal minimum salary. For example, as previously reported here, New York State set a higher minimum salary for exempt administrative and executive employees that varies depending upon the employer’s location and number of employees. Currently, employees working in New York City for an employer with eleven or more employees must earn $1,125.00/week ($58,500 annually) to be exempt from the overtime requirements of New York Labor Law.

In addition to the increased salary threshold, the new proposed rule contains three significant components. First, it permits employers to use “nondiscretionary bonuses and incentive payments (including commissions)” to account for up to 10 percent of the salary level, provided that these bonuses are paid at least once per year. As a result, employers can pay a minimum weekly salary of $611.10 if they include a “catch-up” bonus/incentive payment that brings an employee’s salary for the prior 52-week period up to the new annual threshold of $35,308 per year.

Second, the proposed rule raises the minimum salary required for a “highly compensated employee” from $100,000 to $147,414. The “highly compensated employee” exemption applies to employees whose primary duty includes performing office or non-manual work and who customarily and regularly perform at least one of the exempt duties of an exempt executive, administrative or professional employee. Exemptions may vary by state, however, and many states do not recognize the “highly compensated employee” category.

Finally, the rule proposes different minimum salary thresholds for certain employees based on geography and for employees in the motion picture producing industry. The minimum salary threshold for exempt employees in Puerto Rico, Guam, the Virgin Islands, and the Commonwealth of the Northern Mariana Islands is $455 per week, while employees in American Samoa must be paid at least $380 per week in order to be considered exempt. The new rule also establishes a minimum base rate of $1,036 per week for employees in the motion picture producing industry to be considered exempt (as long as the employee also meets the duties test for the EAP exemption).

We will provide periodic updates concerning the proposed rule which, if finalized, will go into effect in January 2020. Please do not hesitate to contact any of our wage and hour attorneys if you have any questions regarding the proposed changes.