On March 7, 2019, the U.S. Department of Labor (“DOL”) released a Notice of Proposed Rulemaking with the purpose of raising the minimum salary threshold for exempt employees under federal law.
The Fair Labor Standards Act (“FLSA”) provides an exemption from federal minimum wage and overtime pay requirements for employees in bona fide executive, administrative, professional, and outside sales positions (the so-called “white collar exemptions”). Generally, to qualify for such an exemption, employees must satisfy certain tests regarding job duties and be paid no less than a designated minimum salary.
The current minimum salary threshold for white collar exemptions under the FLSA is $455 per week, which equates to an annual salary of $23,660. This threshold was set by the Bush administration in 2004.
In May 2016, the DOL—then under President Obama—announced a Final Rule increasing this minimum salary threshold to $913 per week ($47,476 annually). The Rule also provided for automatic updates to the minimum salary threshold every three years, and provided that certain bonuses and incentive payments (including commissions) could be applied to satisfy up to 10 percent of the minimum salary requirement. (See prior SHLC blog posts regarding the Final Rule here: New Proposed Increases to Minimum Salary Paid to Exempt Employees; U.S. Dept. of Labor Announces New Overtime Regulations for White Collar Workers.)
Shortly after the 2016 election, a federal judge in Texas issued an injunction to block the Final Rule from taking effect, in a case brought to challenge the DOL’s authority to raise the minimum salary threshold. The same judge later entered judgment in favor of the Rule’s opponents, holding that the DOL exceeded the authority delegated to it by Congress when it increased the minimum salary for exempt employees. (See prior SHLC blog posts regarding the federal court’s rulings here: New Overtime Rules Blocked; Court Shoots Down Salary Level Test in DOL Overtime Rule.)
After President Trump took office, the DOL appealed the judgment against it, apparently seeking to defend its authority to adjust the FLSA exemption requirements, while also backing down from defending the specific Obama-era salary increase. The Court of Appeals granted a request to place the appeal on hold while the DOL rewrote its overtime regulations to establish a revised salary threshold.
The Proposed Rule
The new Rule would formally rescind the Obama-era Final Rule that was challenged and enjoined in federal court, and replace it with a Rule containing the following major provisions:
- Increase salary requirement for white collar exemptions to $679 per week ($35,308 annually).
- Non-discretionary bonuses and incentive payments (including commissions) may be used to satisfy up to 10% of the salary requirement.
- Increase salary requirement for Highly Compensated Employees to $147,414 annually (up from $100,000).
- Automatic updates to the salary levels every four years.
- No changes to the “duties test.”
A Note for California Employers
The Proposed Rule, if eventually adopted, will not have a significant impact on employers in California. California law provides its own standards for determining whether employees are exempt from state minimum wage and overtime requirements. To qualify for the executive, administrative, or professional exemptions in California, an employee must be paid a monthly salary equal to no less that two times the state minimum wage based on a schedule of 40 hours per week. The current California minimum wage is $11.00 per hour for employers with 25 employees or less, and $12.00 per hour for employers with at least 26 employees. A full-time employee earning $11.00 per hour would receive an annual salary of $22,880. Two times that amount is $45,760. This is well over the $35,308 minimum annual salary provided in the Proposed Rule.
Therefore, whether the Proposed Rule is adopted or not, California employers with exempt employees will simply have to continue to comply with the minimum salary threshold established by California law.
A Note for Nevada Employers
In contrast, the Nevada exemptions for executive, administrative, and professional employees are largely coextensive with federal law. For Nevada employers, therefore, the Proposed Rule will make a real difference. Currently, Nevada employers benefit from the state and federal white collar exemptions if they pay a minimum salary of $455 per week. If the Proposed Rule is finally adopted, this minimum will increase to $637. Thus, these employers will be required to review the compensation paid to employees classified as exempt to ensure compliance with the new regulations. Employees who do not meet the new salary threshold must either 1) have their compensation increased to satisfy the exemption requirement, or 2) be reclassified as non-exempt and paid overtime (on either a salary or hourly basis).
For a full description of the Proposed Rule, visit: https://www.dol.gov/whd/overtime/overtime2019-nprm.pdf.