DOL issues rule on long-anticipated salary increases for exempt workers

An estimated 4.2 million salaried workers will be affected

Jeff Jones.

The Obama administration continues to rush a whole host of new, wide-ranging regulations as the final year of the president’s term in office winds down. More recently, the Department of Labor issued its long-anticipated final rule concerning the amount of salary a person must make to qualify for the “white collar” exemptions under the Fair Labor Standards Act. While there were some minor changes to the original proposed rules, the changes made by the final rule are significant.

Beginning Dec. 1, for a worker to qualify for the executive, administrative, professional, or any other “while collar” exemption, the minimum guaranteed salary they must receive will increase from $455 per week to $913 per week, or an annual equivalent of $47,476. According to the DOL, this represents “the 40th percentile of weekly earnings for full-time salaries workers in the lowest-wage Census region, currently the South.” This threshold will be adjusted every three years to the then current 40th percentile level of weekly earnings for full-time salaried workers beginning Jan. 1, 2020. The new salary threshold will be published at least 150 days prior to its taking effect.

The DOL also increased the threshold salary for “highly compensated workers” from $100,000 per year to $134,004 per year, or “the 90th percentile of full-time salaried workers nationally.” This threshold will also be adjusted every three years.

The final rule makes no changes to the “duties test” used to determine whether those making at least the guaranteed minimum salary qualify for an exemption from mandatory overtime compensation. Accordingly, those same rules will apply going forward.

Under the new rules, up to 10 percent of the salary threshold for non-highly compensated employees “may consist of non-discretionary bonuses, incentive pay, or commissions, provided these payments are made on at least a quarterly basis.” This means, according to 29 C.F.R. § 541.602(a)3), “If by the last pay period of the quarter the sum of the employee’s weekly salary plus nondiscretionary bonus, incentive and commission payments received does not equal 13 times the weekly salary amount required by § 541.600(a) [or 13 x $913 per week as of 12/1/16 or $11,869.00], the employer may make one final payment sufficient to achieve the required level no later than the next pay period after the end of the quarter.” This will allow the employer to determine if these forms of supplemental income will cover the final 10 percent of the required weekly wage, and if not, cure it in order to preserve the exemption. A similar rule, but viewed on an annual basis, also applies to highly compensated employees.

According to the DOL, under the new final rule, “4.2 million salaried workers will be affected…based on their salaries. These workers are currently ineligible for overtime. The department estimates that most of them (4.1 million) will become eligible for overtime when they work more than 40 hours…while others (100,000) will receive a raise so that their salary is above the new threshold.” The DOL claims that “[a]s a result of this rule, an extra $1.2 billion a year will go into workers’ pockets (those earning between $455 and $913 a week).” Yet according to its website, the DOL “has issued a final rule that will put more money in the pockets of middle class workers – or give them more free time.” So whether workers who do not meet the new salary test will ultimately make more money remains to be seen. The administration, however, was intent on raising the salary threshold from its 2004 level which sat at “less than the poverty level for a family of four and just 1.6 times the federal minimum wage” to a new level of “3.1 times the federal minimum wage for a full-time worker and twice the poverty level for a family of four.”

Employers should evaluate all exempt employees and determine whether those making less than $913 per week will get a salary increase, remain on salary with their hours limited to 40, knowing that these workers will be entitled to overtime compensation for any hours worked in excess of 40 in a work week, or move to an hourly based compensation. Dec. 1 will be here soon, so the time to make this review is now.

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