The day we’ve all been waiting for has arrived! Perhaps not quite that exciting, but the U.S. Department of Labor has finally issued its Notice of Proposed Rulemaking, its second attempt at updating the Fair Labor Standard’s Act’s (FLSA) so-called “white collar” exemptions for executive, administrative, professional, outside sales, and computer employees. As I’m sure you know (or you can read ad nauseum on my blog), in order to qualify to be exempt from the overtime regulations, an employee must meet both the salary basis test, salary level test, and the duties test.
Currently, the salary threshold is $455 per week ($23,660 annually). The proposed rule would increase that threshold to $679 per week ($35,308/year) using the same methodology as how the DOL set the 2004 salary level. This is significantly lower than the 2016 Final Rule (that was enjoined), which attempted to increase the salary threshold to $913/wk or $47,476/year. Similarly, and perhaps more significantly, the salary threshold for highly compensated employees (HCEs) will increase from the current $100,000, to $147,414 per year. This is not the same method as used in 2004, but rather was set using the method in the 2016 Final Rule.
What else is new? Well, the DOL will commit to review and update the salary threshold periodically, but importantly, where the 2016 DOL Final Rule went wrong, any new salary threshold will be updated via a notice-and-comment rulemaking – it will not be automatic. Also, similar, but slightly different than 2016, employers may use non-discretionary bonuses and incentive payments (such as commissions) that are paid at least annually to satisfy up to 10% of the salary threshold. However, if not enough is actually earned, the employer must make a catch-up payment the following year. Thus, an inside sales person making $34,000 in base salary plus $10,000 commission will meet the salary threshold. There were no proposals to the job duties test. Overall, the changes are estimated to affect $1.3 million exempt employees.
What’s next? The public has 60 days to comment on the proposed regulation from the date it is published in the Federal Register (which has not happened yet). The rulemaking docket is RIN 1235-AA20, and will be able to be found at www.regulations.gov, or more specifically here. Once the comment period closes, we wait for any changes and the published final rule, which will provide the effective date.