On Thursday, March 7, 2019, the U.S. Department of Labor (DOL) issued its highly anticipated Notice of Proposed Rulemaking, to update the Fair Labor Standards Act’s salary requirements for the executive, administrative, and professional workers’ exemptions (Proposed Rule), and replace the 2016 rule that is currently enjoined1. The Proposed Rule would revise one of the requirements for the white-collar exemptions—the “salary basis” test—while leaving the other requirement—the “primary duties” test—intact.
The DOL’s Proposed Rule includes:
- Increasing the salary threshold for workers to qualify for one of the exemptions to $679 per week ($35,308 annually)—a substantial increase from the current salary level of $455 per week ($23,660 annually), which was set in 2004;
- Updating the annual minimum compensation for highly compensated employees from $100,000 to $147,414; and
- Allowing employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid annually or more frequently to satisfy up to 10 percent of the standard salary level. This payment may be made during the course of the year or, if needed, in one final payment during the next pay period after the end of the year, but will count only toward the prior year’s salary.
While the Proposed Rule does not provide for automatic periodic updates—previously a topic of debate—the DOL indicated that it intends to propose increases to the threshold every four years.
The Proposed Rule reads as a compromise from the current thresholds and the thresholds the Obama administration proposed in 2016—$47,476 (for the salary minimum) and $134,004 (for the “highly compensated employee” annual minimum). The DOL indicated that it expects the proposed changes to impact more than one million employees.
The Proposed Rule does not require employers to take any action at this point. Instead, the Proposed Rule must follow the federal rulemaking process, including a 60-day period for public comment, followed by an additional period during which the DOL will digest the comments and decide whether to make any changes. While this process unfolds, employers should consider the following steps—many of which employers may already have undertaken in connection with the 2016 changes:
- Examine pay practices to identify whether any currently exempt employees might lose that status if the proposed salary thresholds are adopted;
- Consider whether to increase the salaries of affected employees to preserve their exempt status and/or reclassify them as non-exempt;
- Examine pay practices to confirm that non-exempt employees continue to meet the duties test (which is not changing, but remains essential to exempt status); and
- Consider whether to submit comments to the DOL expressing opinions regarding possible changes to the Proposed Rule.
- In November 2016, U.S. District Judge Amos Mazzant blocked the rule from taking effect, finding that the DOL had overstepped its authority by increasing the salary limit so dramatically and by basing the exemption exclusively on salary. On November 6, 2017, the U.S. Court of Appeals for the Fifth Circuit held the appeal in abeyance pending further rulemaking regarding a revised salary threshold. With the 2016 rule enjoined, the DOL has consistently enforced the 2004 level throughout the last 15 years.