WASHINGTON D.C — On July 6, the U.S. Department of Labor (DOL) issued a Notice of Proposed Rulemaking (NPRM) to update the regulations governing which executive, administrative, and professional (white collar) workers are entitled to the Fair Labor Standards Act’s (FLSA) minimum wage and overtime pay protections. Currently, the salary threshold for the so-called “white collar” exemption is $455 per week, or $23,660 per year. Additionally, current rules provide an exemption for “highly compensated employees” if they are paid a total annual compensation of at least $100,000, which includes at least $455 per week paid on a salary or fee basis and regularly perform at least one of the exempt duties or responsibilities of an executive, administrative, or professional employee.
Proposed Higher Salary and Compensation Levels
The NPRM focuses on increasing the salary and compensation levels necessary to qualify for the exemption:
- The NPRM proposes to set the salary level at $921 per week, or $47,892 annually.
- The NPRM proposes to increase the total annual compensation requirement needed to exempt highly compensated employees to $122,148 annually.
- The NPRM proposes to establish a mechanism for automatically updating the salary and compensation levels going forward to ensure that they will continue to provide a useful and effective test for exemption.
DOL proposes to set the salary level at $921 per week, in the 40th percentile of weekly earnings for full-time salaried workers, which it believes is the most appropriate line of separation between exempt and nonexempt employees. According to DOL, this salary level minimizes the risk that employees will be misclassified based solely on salaries received, without excluding from exemption a high number of employees who meet the duties test.
Justification for Increasing Salary and Compensation Levels
DOL states that approximately 85 percent of white collar salaried workers who fail the “white collar” duties test earn at least $455 per week. Since the current salary level is only screening from exemption approximately 15 percent of overtime-eligible white collar salaried employees, it is not an effective test for exemption and fails to simplify the application of the exemption by reducing the number of employees for whom employers must perform a duties analysis. Increasing the standard salary level to the 40th percentile of weekly earnings for full-time salaried workers would reduce the number of white collar employees who do not meet the duties test but earn at least the proposed salary level to approximately 41 percent.
As to automatically updating salary and compensation levels, DOL proposes two different methods: one would be to keep those levels pegged to the 40th and 90th percentiles of earnings for full-time salaried workers, respectively. The second method would be to adjust salary and compensation amounts based on changes in inflation, as measured by the Consumer Price Index for all Urban Customers. DOL is seeking comment on both methods of updating.
Until the proposed rules become final, the current rules are still in effect with the current salary thresholds. If you or someone you know is not being paid overtime as required by FLSA regulations, you should call (855) 754-2795 or complete the Free Unpaid Overtime Case Review form on the top right of this page. Our top rated team of wage lawyers will evaluate your situation to determine your best course of action. We will also determine if it is in your best interest to file a lawsuit against your employer. There are strict time limitations for filing, so it is important that you call our experienced attorneys today.