The DOL today issued its long awaited proposed rules changing the salary basis test for those employees classified as exempt under the Fair Labor Standards Act (FLSA).  The salary basis test is one of two tests necessary to determine if an employee is properly classified as exempt. The minimum salary basis for exempt employees is currently $455 a week, yielding an annual minimum salary of $23,660.  This minimum salary basis test has been in effect since August 23, 2004.  The proposed rules purport to update those figures and increase the salary minimum to $970 a week for a minimum annual salary of $50,440.  The DOL believes this would impact about 4.6 million employees.  The DOL has proposed this change to “minimize” the risk that employees legally entitled to overtime will be subject to misclassification based solely on the salaries they receive, without excluding from exemption an unacceptably high number of employees who meet the duties test.”[1]

These amounts were projected after the DOL evaluated the current 40^th percentile of weekly earnings for full-time salaried workers because the DOL believes that percentile “represents the most appropriate demarcation between exempt and nonexempt employees.”[2] The proposed rule increases the total annual compensation requirement needed to exempt highly compensated employees from $100,000 to $122,148 annually. The DOL also proposes a mechanism that would automatically update the salary and compensation levels going forward.  The plan is for these rules to take effect in 2016.

The DOL is seeking guidance as to whether to allow nondiscretionary bonuses to satisfy a portion of the salary basis test, whether the standard duties tests are working as intended to screen out employees who are not bona fide white collar exempt employees, and other issues. Comments can be posted electronically at www.regulations.gov or mailed to D.C.[3] Refer to RIN 1235-AA11.

Having been fortunate to offer employment law advice and counsel to employers for years, I can attest that proper classification of those employees considered exempt is an area where even the most sophisticated employer can be non-compliant. Besides providing comments on those areas the DOL is seeking guidance, Employers should audit their FLSA practices regarding who is classified as exempt in their organizations and evaluate how they might address any effect to their financials caused by the mandatory increase in minimum salaries for exempt employees in their employ.

Continue Reading Proposed New Rule More Than Doubles Minimum Salary for Exempt Employees