The Department of Labor (the "DOL") has proposed a $35,308 minimum salary for white-collar exemptions after a 2016 proposed hike in the minimum salary failed.
In 2016, the DOL had proposed increasing the minimum salary for the administrative, executive and professional exemptions from overtime to $47,476 with automatic increases in the minimum salary under federal law every three years thereafter. In November 2016, a federal court issued a nationwide injunction barring the $47,476 minimum salary from ever taking effect.
In response, the DOL went back to the drawing board, and on March 7, 2019, proposed that the salary threshold increase to $35,308 a year (increasing the weekly minimum from $455 to $679). Instead of automatic increases, the proposed rule also includes an evaluation of the salary minimum every four years, with possible increases after that. Like the prior proposal, this proposed rule would also allow, within limits, nondiscretionary bonuses, commissions, and incentive payments to satisfy the salary minimums. The proposed rule also includes an increase to the highly compensated employee ("HCE") exemption, which allows some otherwise nonexempt employees to be considered exempt if they meet a higher salary threshold. The current HCE salary threshold is $100,000; under the proposed rule, the HCE minimum would be $147,414.
The proposed rule is subject to a 60-day period during which interested parties can submit comments. The DOL must then evaluate the comments before the final rule can take effect, which is likely to occur in January 2020. No doubt employer groups and employee advocates will be active in commenting on the proposed rule. Assuming that the DOL will issue a final rule as proposed, the rule may be challenged in court again. This proposal may stand a better chance of surviving judicial scrutiny because some of the court's concern with the previous rule was that the increase to $47,476 was so substantial that employers would have to pay overtime to some bona fide executive, administrative, and professional workers.
What should employers do now?
Evaluate the landscape.
Right now, employers are likely in a wait-and-see mode. Many employers engaged in significant evaluations of their exempt employees in anticipation of the 2016 changes. Employers that did not do so are well served to consider whether they have employees currently considered exempt who fall short of the proposed $35,308 annual salary level. Those employers will need to decide whether to increase those employees' salaries if the proposed rule takes effect or instead convert the employees to nonexempt.
Employers must remember that each of the exemptions has specific requirements about the duties that an employee must perform. Positions that employers consider exempt that are near a $35,000 annual salary should also be scrutinized to make sure that they meet the duties requirements. Employers must remember that exemptions are exceptions to the basic rule that employees get overtime pay, and the employer has the burden of proof to show that the employee actually engages in work that meets the duties requirements and the salary test.
Consider state law.
Employers must also consider state requirements when considering any wage and hour issue, including exemptions: almost all employers must comply with both federal and state law requirements, and in some cases local ordinances.
In Oregon, for example, the salary minimum tracks minimum wage. The Oregon salary minimum for 2019 in the Portland metro area is based on $12.50 per hour, which requires a $500 weekly minimum, slightly exceeding the current federal salary minimum.
Washington's current salary threshold for the white-collar exemptions is only $250 per week, but employers can expect that to increase sometime in the next few months. While the Washington Department of Labor & Industries has not yet formally proposed a new rule, it is working on one and has indicated that it will propose a salary threshold significantly above even what the DOL is now proposing.
And California minimums are based on double the minimum wage and substantially exceed even the proposed rule's minimums, with a $45,760 minimum for employers with 25 or fewer employees and a $49,920 minimum for employers with 26 or more.