Under the Fair Labor Standards Act (FLSA), exemption from minimum wage and overtime pay requirements for executive, administrative, professional, outside sales, and computer employees requires, in part, a minimum salary of $455 per week. That has been the rule since 2004. In May 2016, the DOL issued a final rule, increasing the threshold for these “white collar” employees to $913 per week. The final rule would have become law in December 2016 if a court had not intervened.
Six months after the DOL published the 2016 final rule, a federal judge in Texas shot it down, holding that the DOL overstepped its authority, particularly with regard to a provision of the final rule that implemented an “automatic mechanism” for increasing the threshold every three years, starting on January 1, 2020. An appeal has been held in abeyance while the DOL reassessed its position, including taking public comments through a Request for Information (RFI) process. The DOL finally issued a new NPRM on March 7, 2019.
Per the statutory notice-and-comment procedure, the DOL must first publish a proposed rule, like the NPRM here, then consider public comments before issuing a final rule. The Executive Branch will also evaluate the proposed rule and implications before it is published as final. Generally, the DOL will specify an effective date with the publication of the final rule. Thus, if the DOL adopts all aspects of the NPRM in its final rule – and there is no alteration by the Executive Branch or intervention by the judiciary or legislature – the rule would legally raise the salary threshold for white collar employees from $455 per week ($23,660 annually) to $679 per week ($35,308 annually).
In the March 7th NPRM, the DOL admitted that its drastic increase of the threshold in 2016 was unsupportable, saying, “The Department agrees with the vast majority of RFI commenters that the standard salary level needs to exceed $455 per week to more effectively serve its purpose. But the Department now also believes that increasing the standard salary level to $913 per week was inappropriate.” As such, the DOL has scaled back the threshold increase to $679 per week.
In addition to the white collar exemptions listed above, the salary of “highly-compensated workers” would also be raised. Under the FLSA, a “highly-compensated worker” is currently someone who earns a total annual compensation of $100,000 or more, whose primary duty includes performing office or non-manual work, and who “customarily and regularly performs at least one of the exempt duties or responsibilities of an exempt executive, administrative or professional employee.” Under the March 7th NPRM, the floor for those workers’ salaries would increase to $147,414 annually.
The proposed rule would also “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 standard salary level” (which had been an element of the 2016 final rule). In case an employee’s salary does not reach the minimum amount in a 52-week period, the DOL “proposes to permit employers to make a final ‘catch-up’ payment within one pay period … to bring an employee’s compensation up to the required level.”
Two things that the rule does not do is (1) institute a separate salary threshold for each white collar exemption category (which the DOL had suggested doing in its RFI), or (2) institute an “automatic” mechanism to increase the salary threshold every three years. Recognizing that the federal court struck down that mechanism as “unlawful,” the DOL has backed off the automatic increases, but not its intention to raise the threshold more frequently through the traditional notice-and-comment procedure. To that end, the DOL proposes “quadrennial updates” to “ensure public input on how earning thresholds could continue to be up-to-date, while giving businesses sufficient time to adjust to these more frequent (and thus smaller) increases.”
Of course, the rule is not final. As explained above, only after public comment and evaluation by the Executive Branch may the DOL publish a final rule, which will likely specify an Effective Date.
Client Alert 2019-061
