Department of Labor Proposes to Increase Exempt Status Salary Thresholds

By / July 6, 2015

Today, the Department of Labor issued a proposal to set new salary thresholds for purposes of determining exempt and nonexempt workers under the Fair Labor Standards Act’s overtime pay protections. The rationale is that the current levels for white collar worker exemption of $455 per week ($23,660/year) and for highly compensated worker exemption of $100,000/year total annual compensation are too low. NLBMDA regulatory staff and the Regulatory, Codes and Standards Committee are reviewing the proposal in detail. Comments to be filed with the Department of Labor are due September 4, 2015.

The proposal will increase the current white collar worker exemption level of $455 per week (approximately $23,660 per year) to what the Department estimates will be $970/week ($50,400/year) for the calendar year 2016. The Department is relying on 2013 data to determine the 40th percentile of weekly earnings of full-time salaried workers. For 2013, that level was $921/week ($47,892/year). Once reset, the salary level would be adjusted annually, either tied to the 40th percentile or the Consumer Price Index for all Urban Consumers.

The proposal will also increase the total annual compensation requirement for highly compensated employees from the current $100,000/year to an annualized value of the 90th percentile of weekly earnings of full-time workers ($122,148/year). This level too, once reset, would be subject to annual adjustments, either tied to the 90th percentile of the Consumer Price Index for all Urban Consumers.

As described by a Wage and Hour Division Fact Sheet

The Notice of Proposed Rulemaking (NPRM) focuses primarily on updating the salary and compensation levels needed for white collar workers and highly compensated workers to be exempt. Specifically, the Department proposes to:

1. Set the standard salary level at the 40th percentile of weekly earnings for full-time salaried workers ($921 per week, or $47,892 annually);
2. Increase the total annual compensation requirement needed to exempt highly compensated employees (HCEs) to the annualized value of the 90th percentile of weekly earnings of full-time salaried workers ($122,148 annually); and
3. 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.

This background from the Fact Sheet is also helpful:

Since 1940, the Department’s regulations have generally required each of three tests to be met for one of the FLSA’s white collar exemptions to apply: (1) the employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed; (2) the amount of salary paid must meet a minimum specified amount; and (3) the employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations.

Certain highly compensated employees are exempt from the overtime pay requirement if they are paid total annual compensation of at least $100,000 (which must include at least $455 per week paid on a salary or fee basis) and 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 pre-publication version of the proposal may be found on the Wage and Hour Division’s webpage.

Source: NLBMDA

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