We are now approaching the 3rd anniversary of the United States Department of Labor’s (DOL) efforts to raise the minimum salary of those workers who can be deemed “exempt” from federal law overtime requirements. Under current federal law, in order to be exempt from overtime requirements, an employee (1) has to perform executive, administrative, or professional duties (the “duties test”); (2) has to be paid a set weekly salary that does not change based upon the number of hours worked (the “salary level test”); and, (3) has to be paid at least $455.00 per week ($23,660.00 annually). This last criteria is referred to as the “minimum salary test.” The minimum salary test is the subject of the ongoing effort to change current law. Despite the protracted debate, most everyone agrees an annual salary of $23,660.00 is too low a threshold and that it needs to be raised.
In May 2016, the DOL issued a final rule implementing a very substantial change in the minimum salary test to increase it to $921.00 per week ($47,892.00 annually). Under that, an employee currently treated as exempt earning less than $921.00 per week would be subject to overtime pay requirements, even if that employee performed executive, administrative or professional duties. Shortly before the 2016 final rule went into effect, however, a United States District Court in Texas issued a nation-wide injunction prohibiting its implementation. Rather than pressing an appeal of that ruling, the Trump administration announced it would reevaluate the 2016 final rule and propose its own updated version.
Very recently, the DOL announced a new proposed rule that raises the minimum salary test well above the current figure of $23,660.00. The new figure, is, however, substantially less than the threshold under the 2016 final rule. The highlights of this proposed rule are as follows:
- The minimum salary would be increased from $455.00 per week ($23,660.00 annually) to $679.00 per week ($35,308.00 annually). Any worker earning above this salary level must still meet the duties test to be exempt from overtime pay requirements.
- Employers may include the amount of non-discretionary bonuses, incentive payments, and commissions paid on an annual or more frequent basis to raise an employee’s salary level. Such payments cannot count for more than 10% of the salary level.
- Unlike the 2016 final rule, the salary level will not be automatically increased on a periodic basis. The newly proposed rule does, however, provide that the salary level will be subject to periodic review every 4 years. Any increase would be subject to the notice and rule making process.
- The DOL projects the new proposal to go into effect on January 1, 2020.
The DOL will now receive and consider timely comments submitted to it regarding the proposed rule and issue a final rule before the anticipated effective date. Fortunately, many employers have already reviewed their employee overtime classifications in anticipation of the 2016 final rule becoming law. Even those employers will need to revisit the subject given the substantial difference in the minimum salary thresholds under each proposed rule. This can be a cumbersome process and I urge all employers, and certainly those that did not previously undertake the analysis, to commence that review with its Human Resources staff and legal counsel well prior to January 2020.
If you would like to contact John Lawhorn
on this or any other matter, he may be reached at (865) 546-9321.