The U.S. Department of Labor (USDOL) released proposed regulations on March 7, 2019 adjusting the salary level required for the executive, administrative, and professional employee (EAP) exemptions from the FLSA’s minimum wage and overtime requirements. The proposed regulations are expected to go into effect in January 2020.
The proposed regulations would increase the salary threshold for the EAP exemptions from the current level of $455 a week ($23,660 per year) to $679 a week ($35,308 per year). (Recall that in 2016, under the prior administration, the USDOL issued regulations setting an EAP exemption salary threshold of $913 a week or $47,476 annualized. Those regulations were enjoined by a federal district court and later officially rescinded by the USDOL).
Instead of automatic adjustments as contained in the rescinded 2016 regulations, the salary threshold under the proposed rule would be subject to periodic increases every four years after a public notice-and-comment period on the proposed increase.
Carrying forward a provision from the rescinded 2016 regulations, the USDOL will allow employers to include certain nondiscretionary bonuses (like a productivity bonus) and incentive payments (like commissions) that are paid annually or more frequently towards up to 10% (no more than $3,530.80) of an employee’s salary for purposes of determining whether the required base salary level is met. The 2016 regulations required the 10% to be paid quarterly. The annual requirement under the new regulation gives employers more flexibility in paying exempt employees nondiscretionary bonuses and commissions and satisfying the salary level requirement.
The proposed rule would also allow employers to make a final “catch-up” payment at the end of the year if the nondiscretionary bonuses and incentive payments are not enough to satisfy the base salary requirement of $35,308. The catch-up payment cannot exceed 10% of the base salary level (no more than $3,530.80) and must be paid within one pay period after the end of the 52-week period.
The USDOL is also proposing to carry forward the “Highly Compensated Employee” concept introduced in 2004 which allows for a relaxed “duties test” and would permit an employee to be considered exempt if he or she made a sufficiently high salary. The “Highly Compensated Employee” salary level has been fixed at $100,000 since 2004. In the new regulations issued on March 7, the USDOL proposes using an adjustment methodology contained in the rescinded 2016 regulations which pegs the salary level to the 90th percentile of full-time salaried workers in the United States. Projecting this salary data to January 2020, the minimum salary level for a “Highly Compensated Employee” would be $147,414 per year. For Highly Compensated Employees, the base salary level ($35,308) must be met without including any nondiscretionary or incentive pay, but those payments can be included in meeting the annual compensation requirement of $147,414.
The USDOL does not propose making any changes to the “duties” tests applicable to the EAP exemptions. (Recall that exempt status requires satisfaction of both the base salary level test and the exempt duties test).
The USDOL’s proposed overtime regulations were issued on March 7, 2019, with a comment period to begin on the date they were published in the Federal Register. The proposed regulations were published March 22, 2019, so interested parties have until May 21, 2019 to submit comments on the proposed regulations.
Stay tuned, as the USDOL may make adjustments to the proposed regulations as a result of comments received from various constituencies.