The U.S. Department of Labor (DOL) is seeking to change the criteria for so-called “white collar” exemptions, the most common of which apply to executive, administrative and professional employees. Most notably, it looks like the salary threshold for those exemptions will rise. The current thresholds were established in 2004, so they’re probably overdue for an update. You may recall that the DOL went down this road in 2016, but ultimately abandoned its efforts after substantial controversy, an adverse court ruling and the election of a new president. The changes it proposes now are similar to, but less drastic than, the 2016 proposals.
What do the current regulations provide?
The default rule is that employers are required to pay 1.5 times the regular hourly rate to employees for every hour worked over the standard 40-hour work week. However, like any rule, there are exceptions. Certain “white collar” employees may be “exempt” from the FLSA’s overtime requirements, but only if, in addition to meeting other criteria, they earn a salary of at least $455/week, which is the equivalent of $23,660/year.
Certain “highly compensated” employees may also be exempt, even if they don’t meet all of the criteria applicable to other employees, as long as they earn at least $100,000/year.
What changes is the DOL proposing?
The most notable changes proposed by the DOL are:
- The weekly salary threshold increases. The proposal would change the amount an employee must make before being classified as exempt from the current rate of $455/week to $679/week, the equivalent of $35,308.08/year. (The 2016 proposal had it increasing to $47,476/year); and
- $100,000 isn’t as much money as it used to be. The new proposal would change the amount an employee must make before being characterized as a highly compensated exempt employee from $100,000/year to $147,414/year.
For the full text of the proposal, click here: https://www.dol.gov/whd/overtime/overtime2019-nprm.pdf
Will this proposal become law? If so, when? Most think that this proposal, or something very similar to it, will indeed become effective. Right now, the best estimate on timing is early 2020.
What does this mean for your business? The probability is that, in the coming months, many employees who are currently classified as exempt will no longer meet the salary threshold for that classification. For those employees, employers will need to track hours and, when warranted, pay overtime. More likely than not, you prepared for some version of this back in 2016. It may be time to revisit those plans.