New Salary Levels Proposed for White Collar Exemptions: The Latest In the DOL’s Rollercoaster
Remember what you were doing in late November 2016? Me neither. But you may remember around that time analyzing the salary levels for your employees who are classified as exempt from the Fair Labor Standards Act’s overtime requirements under one of the “white collar” exemptions (i.e. the executive, administrative, professional, outside sales, and computer employees exemptions). At that time, the Department of Labor (DOL), under President Obama, had announced that the salary requirements for these exemptions would nearly double, from $455 per week ($23,660 per year) to $913 per week ($47,476 per year).
This change, which was estimated to eliminate the overtime exemption for nearly 4.2 million employees, faced serious criticism from employers. In fact, on November 22, 2016, in a case brought against the DOL by 21 states, a Texas court entered a nationwide preliminary injunction that blocked the DOL from implementing the rule, which had been set to take effect a mere eight days later on December 1. While this decision was welcomed by many employers, others had already implemented changes in their own pay structures to comply.
Fast-forward to March 2019, because nothing of consequence happened with the salary level requirement before then, other than the whisperings of some policy wonks in D.C. In fact, the salary level requirement is still at the $455-per-week level set in 2004. But on March 8, 2019, the DOL finally published its long-anticipated Notice of Proposed Rulemaking (NPRM) on these exemptions. The NPRM proposes to:
- Increase the salary level requirement for the executive, administrative, professional, outside sales, and computer employees exemptions to $679 per week ($35,308 per year);
- Allow 10% of the required threshold (i.e., $3,531 annually) to include non-discretionary bonuses and commissions that are paid at least annually, and allow an end-of-the-year catch-up payment if needed to make up for shortfalls to the 90% weekly minimum level paid over the course of the previous year;
- Raise the salary level for the “highly compensated employee” exemption to $147,414 per year (from the currently required level of $100,000);
- Consider additional adjustments to the salary level requirement, using the same methodology used for this NPRM, every four years.
The announcement that the DOL will use the same methodology for future adjustments to the salary level may come as a relief to many employers. The changes that were supposed to be implemented in 2016—the ones stopped dead in their tracks by the court in Texas—included a system for automatically updating the salary level requirement every three years. Instead, the DOL plans to announce proposed changes, seek public comment on its proposal (not only on how much, but even whether to update salary levels), and “giv[e] businesses sufficient time to adjust to these more frequent (and thus smaller) increases.” Indeed, the NPRM states that the DOL may even “forestall proposing updates if economic or other factors so indicate.”
The DOL anticipates that its recently announced changes will go into effect by early 2020. In the meantime, the agency will be accepting public comments about the proposed changes during a 60-day period. After the comment period closes, the DOL will take some time to consider all comments submitted before it issues a final rule.
Thus, the time has come for employers to dust off the reviews of their pay plans and exemption classifications that they started in 2016. To comply with these new changes, for previously exempt employees who are making less than $35,308 per year, employers must either a) reclassify them as hourly non-exempt and pay them for and/or limit their overtime; or b) raise their salary above the new limit.