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DOL Sets off Pre-July 4 Fireworks with Proposal to Double Income Level for Salaried Exempt Employees

The U.S. Department of Labor (DOL) yesterday issued a Notice of Proposed Rulemaking that would significantly change the legal requirements for an employee to qualify as exempt from the overtime requirements of the Fair Labor Standards Act (FLSA). The exempt status requirements have not been revised since 2004. While yesterday’s announcement was merely a proposal, the potential changes to the law are significant enough to warrant employers’ close attention and even involvement in the rulemaking process as discussed at the conclusion of this alert. 

PROPOSED REVISIONS 

Most importantly, the DOL proposes to significantly increase the minimum compensation requirements for exempt employees as follows:

The minimum weekly salary for exempt employees, presently $455 per week or $23,660 per year (http://www.dol.gov/whd/overtime/fs17a_overview.pdf), would increase to the 40th percentile of weekly earnings for full-time salaried workers in the United States, estimated to be $970 per week or $50,440 per year in 2016;

The minimum annual salary required for the Highly Compensated Employee exemption, presently $100,000 per year (here), would increase to the 90th percentile of weekly earnings for full-time salaried workers in the United States, which is currently $122,148; and

These compensation requirements would automatically increase annually going forward based on a yet to be determined formula.

The DOL also announced that it is considering, but is not yet proposing, revising the job duties requirements for exempt employees, and whether non-discretionary bonus or incentive pay should count toward the minimum salary requirement for Highly Compensated Employees. 

WHAT THIS MEANS FOR EMPLOYERS 

If the DOL’s proposed revisions become final, absent a special exempt status, no employee will be exempt from the overtime requirements of the FLSA if they are paid a salary less than the new minimum salary (estimated to be $50,440 per year in 2016), which is more than double the current minimum. For any and all salaried employees presently earning less than the new minimum, employers would be required to choose between either (i) having those employees subject to record-keeping requirements as hourly employees and paying overtime for hours worked over 40 in a week, or (ii) increasing base salaries to meet or exceed the new minimum. Thus, in the event the proposed changes are implemented, the impact on employers could potentially be significant. Furthermore, if the DOL implements revisions to the job duties requirements, it is possible employers will be faced with a completely new approach to compensation for many of their once-exempt employees. 

Again, it is important to understand that yesterday’s announcement was merely a proposal, and is not final. Employers do not presently need to make any changes. The DOL is currently seeking comments on the proposed revisions as well as potential changes to the duties tests, and we expect that final rules implementing any actual revisions are still months, perhaps at least a year, away. The DOL has not yet announced a proposed effective date. 

WHAT EMPLOYERS CAN, AND SHOULD, DO NOW 

The DOL is actively soliciting comments on the proposed revisions, as well as a number of other considerations as discussed above. Employers are encouraged to comment and let the DOL know how this significant revision would impact their businesses and employees. Instructions on how to comment, as well as the DOL’s full Notice, may be found here.

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About this Author

Bradley M. Bakker, Employment, Labor, Attorney, Armstrong Teasdale, Law Firm
Associate

Bradley Bakker is an experienced employment and labor litigator whose clients include public and private companies as well as educational institutions. He defends employers in state and federal courts and before the Equal Employment Opportunity Commission and other administrative bodies.

314-342-8069
Jeremy M. Brenner, Labor Law Attorney, Armstrong Teasdale Law firm
Associate

Jeremy Brenner, a member of Armstrong Teasdale’s Employment & Labor and Non-Compete/Trade Secrets practice groups, combines his experience and education in human resources and law to provide clients with a unique perspective on the challenges they face in the workplace. In addition to providing guidance, he is both a trial attorney and a certified mediator who is trained to assist parties in amicably resolving disputes without resorting to the time and expense of traditional litigation.

314-342-4184
Shelley Ericsson, Labor, Employment, Attorney, Armstrong Teasdale, law firm
Partner

Shelley Ericsson provides practical, sophisticated advice to complex legal problems unique to the labor and employment arena.

In state and federal courts and before state, federal, and local administrative agencies, Shelley defends employers in matters involving claims of discrimination, harassment, retaliation and wages. With a deep knowledge of employment law policies and an eye on the ever-changing economic reality, she litigates matters such as Title VII, Section 1981, the Age Discrimination in Employment Act (ADEA), the Fair Labor Standards Act (FLSA), the Americans with...

816-472-3143
Jovita M. Foster, Armstrong Teasdale Law Firm, Labor Law Attorney
Partner

Jovita Foster is an accomplished litigator working with small- to medium-sized businesses, public utilities, and Fortune 100 and 500 companies in all facets of employment and labor law.

In state and federal jurisdictions and in front of the Appeals Tribunal, Jovita defends employers and managers in disputes involving claims of discrimination, retaliation, violations of public policy, sexual harassment, wrongful termination, and unemployment appeals. She successfully defends employers and managers in arbitration. Jovita also represents broker-dealers in...

314-552-6698
Dione C. Greene, Armstrong Teasdale Law Firm, Litigation Attorney
Associate

A member of the Litigation practice group, Dione Greene focuses on employment disputes, insurance issues, franchise matters and municipal law.

816-221-3420