The Department of Labor issued a proposed rule to update and revise Fair Labor Standards Act regulations to implement minimum wage and overtime pay exemptions for executive, administrative, professional, outside sales and computer employees. Often referred to as “white collar” exemptions, they generally require employees to be paid on a salary basis at or above a specified minimum weekly salary level and meet certain requirements related to their primary job duties.
The previous weekly salary threshold was $455 ($23,660 per year). The DOL’s proposed rule, issued March 7, would increase this threshold to $679 per week ($35,308 per year). Although this action would increase the number of employees eligible for overtime, the DOL is also proposing to allow the inclusion of nondiscretionary bonuses and incentive payments (including commissions) paid on an annual or more frequent basis to satisfy up to 10 percent of the new minimum salary level. These changes primarily impact public sector employers in California who are exempt from state overtime requirements. Private sector employers in California are still subject to a higher minimum salary level imposed by state law.
The DOL also proposes to increase the annual compensation threshold for the so-called “highly compensated employee” exemption. The HCE test for this exemption states that employees who receive at least a specified total annual compensation (which must include at least the standard salary amount per week paid on a salary or fee basis) are exempt from the FLSA’s overtime requirements if they customarily and regularly perform at least one of the exempt duties or responsibilities of an executive, administrative or professional employee identified in the standard tests for exemption. The HCE test applies only to employees whose primary duty includes performing office or non-manual work. The proposed rule would increase the HCE total annual compensation threshold from $100,000 to $147,414.
This proposed rule serves as a replacement to one previously issued by the Obama administration in 2016. The 2016 rule would have increased the weekly salary threshold to $913 ($47,476 per year) and the HCE total annual compensation threshold to $134,000, but implementation of that rule was subsequently blocked by the U.S. District Court for the Eastern District of Texas. This proposed rule would formally rescind the 2016 rule.
If enacted, this proposed rule will have wide ranging impacts. The DOL predicts that, if the final rule takes effect in 2020, the expected number of affected workers nationwide in the first year will be 1.3 million, with 1.1 million of those employees impacted by the new minimum salary level and the remaining 200,000 by the increase to the HCE threshold. The DOL also indicated that it intends to update the earnings thresholds every 4 years to prevent the levels from becoming outdated.
As noted above, private sector employers in California should remember that they are still subject to different rules for establishing the minimum salary required for an employee to be exempt from state overtime requirements. In particular, that salary must be at least twice the minimum wage for full-time (40 hours per week) employment. For 2019, the minimum annual salary for employers with 25 or less employees is $46,760, and the minimum salary for employers with 26 or more employees is $49,920. Because California’s minimum salary is tied to the minimum wage in effect at the time, it will increase as the minimum wage increases.
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