After months of speculation, on March 7, 2019, the U.S. Department of Labor (DOL) announced its proposed new salary level threshold for FLSA white-collar exempt status. Under the DOL’s proposal, the exempt status salary level will increase to $35,308 annually from the current level of $23,660 per year.
Exempt Status Requirements
The Fair Labor Standards Act requires employers to pay employees at least time and one-half their regular pay rate for all hours worked over 40 in a workweek. However, the FLSA exempts certain positions from the overtime pay requirement if they satisfy two criteria or tests:
- The Duties Test: Employees whose primary duties involve executive, professional, and administrative functions (among others) typically meet the exempt status duties test.
- The Salary Basis Test: Employee who are (generally) paid a guaranteed salary each week regardless of the quality or quantity (hours) of work performed and are paid at least the specified salary threshold will typically meet the exempt status salary basis test.
The FLSA regulations currently set the salary level threshold of pay at $23,660 annually, which is equal to a salary of $455 per week. That salary level threshold has been in place since 2004.
2016 Proposal to Increase Salary Level
As many employers will recall, in 2016 the DOL issued a new rule modifying the FLSA regulations to increase the salary level threshold from $23,660 to $47,476 annually ($913 per week). That increase, which would have more than doubled the salary level threshold, was met with outrage by employers who said it would harm, not help, employees as cuts to hours and even job loss would ensue. The 2016 regulation faced legal challenges by business groups and was eventually blocked by a federal judge just a week before its Dec. 1, 2016, effective date.
The 2019 Salary Threshold Proposal and Next Steps
Although the DOL was not successful in implementing the new salary level threshold in 2016, it has been generally recognized that, at 15 years old, the current $455 per week salary level is outdated. Secretary of Labor Alex Acosta made clear at his 2017 Senate confirmation hearing that he was looking to set a new annual salary level threshold at a mid-point between the $23,660 level and the $47,476 level set by the DOL under the Obama Administration. The DOL found that mid-point at $35,308 annually after receiving extensive public input including in-person listening sessions and more than 200,000 written comments. According to reports, the new salary level is expected to affect the exempt status classification of just over one million employees.
The DOL revealed the new salary level threshold on March 7, 2019. However, the full text of the proposed regulations will be disclosed in the Federal Register next week. Once the proposed regulation is officially released, there will be a 60 day public comment period. Barring any significant changes, the DOL would then be expected to release the final rule on the new salary level later this year with a likely effective date in late 2019.
And, like the 2016 salary threshold rule, challenges are likely. In fact, at least one worker advocacy group has already said that it will contest the proposed rule because the DOL has not adequately justified moving away from the higher 2016 salary threshold.
Apparently, the baseball saying, “it ain’t over till its over,” also applies to DOL regulations.
McDonald Hopkins will keep employers updated on developments related to the new salary level rule. Employers with questions can contact their McDonald Hopkins attorney.