White Collar Exemption
The Fair Labor Standards Act (FLSA) exempts from overtime and minimum wage requirements certain employees who meet both a minimum salary requirement and a job duties requirement. This is often referred to as the “white collar” exemption.
To meet the minimum salary requirement, the employee must be paid on a salary basis at a rate of $455 or more per week, or be a “highly compensated employee” (as defined under the FLSA rules). On March 22, 2019, the Wage and Hour Division of the Department of Labor (DOL) published a proposed rule to (1) increase the minimum salary requirement, (2) increase the annual compensation component of “highly compensated employee” definition, and (3) make other modifications to these rules. Employers are not yet required to comply with the new proposed rule, but, after a brief comment period, we expect the DOL to publish a final rule that employers must follow.
Previous Attempt to Raise the Minimum
In May of 2016, the DOL issued a final rule to increase the minimum salary requirement for the “white collar” exemption from $455 per week ($23,660 annually) to $913 per week ($47,476 annually). The 2016 final rule also required automatic increases to the minimum salary requirement every three years.
However, a week before the effective date of the final rule, a federal district court in the Eastern District of Texas prohibited the implementation of final rule. The DOL has since abandoned attempts to challenge that court’s ruling and the 2016 final rule was never implemented.
The DOL’s March 22, 2019 proposed rule replaces the 2016 final rule’s increase to the minimum salary requirement with a much lower increase. The proposed rule increases the minimum salary requirement to $679 per week ($35,308 annually), and does not currently require automatic increases (instead, it calls for proposed updates every four years).
Additionally, the 2016 rule permitted 10% of this salary requirement to be satisfied with quarterly nondiscretionary bonuses, incentives, and commissions. Under the new proposed rule, employers will still be permitted to satisfy 10% of the minimum salary requirement with nondiscretionary bonuses, incentives, and commissions, but the bonuses need only be paid annually.
Currently, under the FLSA “Highly Compensated Employee” overtime and minimum wage exemption, an employee is “highly compensated” if the employee’s total annual compensation is at least $100,000. The new proposed rule increases the total annual compensation threshold for this “highly compensated” exemption to $147,414.
The DOL is accepting comments on the proposed rule until May 21, 2019. The DOL will consider all submitted comments and is expected to publish a final rule early in 2020.
Affected employers are encouraged to submit comments on the rule by going to www.regulations.gov and searching for 1235-AA20. Please contact us if you have any questions regarding this proposed rule or if you would like us to submit any comments to the DOL on your behalf.