Yesterday the Department of Labor (DOL) issued its long-anticipated update to the Fair Labor Standards Act (FLSA) exemption for paying employees overtime for hours worked over 40 in a workweek.
Under the FLSA employers must pay minimum wage and overtime pay at 1.5x an employee's regular rate of pay, unless the employee fits within an exempt category of workers. For so-called white-collar workers working in Executive, Administrative or Professional jobs there is an opportunity for employers to claim they are exempt from these minimum wage and overtime requirements, but only if they pay the employees on a salaried basis, at a minimum salary level, and the employee performs certain required duties. At least for white-collar workers, if all three criteria are not satisfied the employee is entitled to overtime.
History of Salary Level Politics
Under current regulations the salary level is $23,660/year to claim the exemption. In 2016 the Obama-era DOL sought to increase the level to $47,476/year. The Obama-DOL's move to increase the salary level was blocked by a federal judge days before the 2016 election and then stricken by the same judge in 2017. Though antagonistic to the Obama-DOL's move to increase the salary level to $47,476 the Trump-DOL has not been entirely opposed to the concept of an increase of some amount. Yesterday the Trump-DOL made good on its professed desire to increase the salary level, but to a more modest level than the Obama-DOL.
What you need to know
Yesterday we received only a proposed regulation. More changes may be forthcoming, but here are the salient points that will be key talking points all HR professionals, managers and business owners need to know:
- New Salary Level. As proposed, beginning January 1, 2020, all employers covered by the FLSA would be required to pay at least $35,308/year ($679/week) to white-collar employees to claim them as exempt under federal law.
- Future Increases. Every four (4) years the DOL would propose an update to the salary level, which would be open for public comment.
- No Duties Changes. The DOL decided not to propose any change to the "duties test." This means the duties for each of the Executive, Administrative and Professional exempt categories remains the same from the 2004 regulations. Changing the duties test would have been a big deal, but such changes do not appear on the horizon.
- Highly Compensated Employees. The new salary threshold for highly compensated employees will move from $100,000 to $147,414. This increase surprisingly exceeds what the Obama-DOL sought by about $13,000.
What Employers Need to Do Now
First, these proposals may change before they are finalized. They are slated to take effect January 1, 2020, but nothing is certain. Still, employers should begin to analyze the salary levels they are paying current exempt employees. For those exempt Executive, Administrative or Professional employees who are making less than $679/week, but more than $455/week you will likely need to make a decision before 2020 whether to move them to hourly, and thus make them eligible for overtime pay, or increase their salary to at least $679/week.
Second, stay informed on any future changes to these proposed regulations. The final regulations will likely be issued in the next six or so months. Small changes may impact your decision on whether to increase current exempt employees' salaries or allow them to become hourly workers.