The Department of Labor’s New Salary Level is Out: What Employers Need to Know

The wait is over.  On March 7, 2019, the United States Department of Labor (DOL) issued its long-awaited proposed rule on the minimum salary for exempt executive, administrative and professional employees under the Fair Labor Standards Act (FLSA).  The proposed rule would replace the prior 2016 version which was enjoined by a federal judge in Texas just days before it was set to take effect, and which has been languishing in a federal appeals court ever since.

Although the rule is not finalized yet, employers now have a good idea of what to expect from this new DOL regulation.

The Basics

The so-called “white collar” exemptions – those for executive, administrative, and professional employees – are the most common exemption from the FLSA’s minimum wage and overtime requirements.  To claim the exemption, three criteria must be satisfied: (1) the employee performs exempt executive, administrative, or professional “duties” as defined by the regulations; (2) the employee is paid on a “salary basis” – that is, without reference to the quality or quantity of their work; and (3) the employee is paid at least the minimum weekly salary amount established by the DOL.  The proposed rule changes only the last of these requirements.

New Minimum Salary Threshold is $35,308 Per Year

The current salary minimum to claim these exemptions is $23,660 per year, the equivalent of $455 per week.  The new proposed minimum salary for these exemptions would raise the annual minimum salary to $35,308 per year, the equivalent to $679 per week.  This is significantly less than the $47,476 annual minimum ($913 per week) adopted by the Obama Administration’s 2016 rule.  Although the $35,308 annual minimum may change slightly in the proposed rule, the new minimum salary for these exemptions will almost certainly be in the mid-$35,000 range.

Bonus, Incentive, and “Catch-up” Payments

The proposed rule has two new features relating to this salary minimum employers can welcome.  First, employers are permitted to “count nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent” of the new minimum salary amount, provided that such “bonuses are paid annually or more frequently.”

Second, the proposed rule permits employers to make “a final ‘catch-up’ payment within one pay period after the end of each 52-week period to bring an employee’s final compensation up to the required level.”  To take advantage of this “catch-up” rule, an employer must pay exempt executive, administrative and professional employees “90 percent of the standard salary level ($611.10 per week), and if at the end of the 52 week period the salary paid” plus eligible bonuses and incentives do not satisfy the annual minimum, the employer would be required to make up the shortfall in one pay period.  This new flexibility in meeting the minimum salary requirement for these exemptions will undoubtedly be welcome by many employers, especially those whose exempt employees are entitled to certain bonuses and commission payments.  But employers should be sure not to forget to “catch-up” or risk losing the ability to claim the exemption.

Highly Compensated Employee New Minimum of $147,414

Under the current version of the Highly Compensated Employee exemption, employees who earn at least $100,000, perform office or non-manual work, and “customarily and regularly perform at least one” of the exempt duties of an executive, administrative or professional employee are also exempt from the FLSA minimum wage and overtime requirements.

In something of a surprise, the proposed rule dramatically increases the minimum salary for the “highly compensated employee” exemption from the current $100,000 per year to $147,414 per year.  The DOL’s new minimum salary threshold for this exemption is significantly higher than even the 2016 rule, which set the minimum at $134,404.

Quadrennial Updates (Maybe)

The Department’s proposed rule also indicates that the salary minimum for executive, administrative and professional exemptions will be updated every four years; though the DOL ultimately retains discretion to determine whether to make such a change.  The proposed rule therefore differs from the 2016 version, which required automatic increases to the minimum salary levels every three years.

Preparing for the New Rule

It is important to remember that the final rule may not be identical to the proposed rule described above.  Now that the proposed rule has been published, the DOL will accept and review additional comments on the proposed rule and may make adjustments to these salary levels or other provisions of the proposed rule.  Employers who have concerns regarding the provisions of the new rule have the opportunity to submit their comments to the DOL before the rule is finalized; consider having a local chamber of commerce or trade organization submit comments, concerns and criticisms to the Department for consideration.  Comments about the proposed rule may be submitted electronically at in the rulemaking docket RIN 1235-AA20, but must be submitted by May 21, 2019.

However, given that the final rule will likely adopt a minimum salary threshold similar to its proposed $35,308 minimum, employers can begin evaluating which employees may be impacted and act accordingly.

The St. Louis employment attorneys at McMahon Berger have been advising employers across the country on wage and hour issues for over sixty years, and are available to discuss these issues and others. As always, the foregoing is for informational purposes only and does not constitute legal advice regarding any particular situation as every situation must be evaluated on its own facts. The choice of a lawyer is an important decision and should not be based solely on advertisements.