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Minimum Wage, Overtime Exemption: Labor Department Proposes a Salary Threshold Hike for All Employees - Including Highly Compensated Employees

 

Shar Bahmani

 

Joe Keene

 
   

The new $35,308 threshold would be applicable to all employees who an employer seeks to classify as exempt as an executive, administrative, or professional employee.

On March 8, 2019, the U.S. Department of Labor (DOL) announced a proposed new rule that would increase the salary threshold - from $23,660 to $35,308 - for employees that are exempt from minimum wage and overtime. The proposed rule would also increase the salary threshold for employees classified as “highly compensated” employees from $134,004 to $147,414. The DOL anticipates that the new rule will take effect in January 2020.

The benefits to an employer of classifying an employee as exempt employee pursuant to the Fair Labor Standards Act (FLSA) is that the employee loses certain FLSA protections, such as overtime pay, federal minimum wage pay, and applicable record-keeping requirements.

The new $35,308 threshold would be applicable to all employees who an employer seeks to classify as exempt as an executive, administrative, or professional employee. This proposed salary requirement is substantially higher than the current threshold of $23,660, but not as high as the 2016 proposed increase to $47,476. Although the proposed threshold may appear to be low, the DOL anticipates that the new rule will expand overtime eligibility by approximately 1.1 million workers. In calculating the new salary threshold for the rule, the DOL applied the same methodology it used for the 2004 rule, which set the salary level at approximately the 20th percentile of earnings of full-time salaried workers in the lowest-wage census region (the South) and in the retail sector.

Employees who do not meet the work duties and responsibilities requirements set forth by the FLSA's executive, administrative, or professional exemptions may be classified as exempt if the easier-to-meet requirements of the exemption for highly compensated employees are satisfied. In 2016, the DOL issued a final rule increasing the threshold salary level for those employees from $100,000 to $134,004. The DOL's most recent proposal attempts to further increase this threshold in order to “set the level equivalent to the 90th percentile of full-time salaried workers nationally... projected forward to 2020."

Misclassification of employees can have significant adverse consequences to an employer, including payment of unpaid back wages, liquidated damages, and attorney's fees. Employers should review the salary levels of their employees currently classified as exempt employees to determine whether this proposed rule will impact them. Employers should keep in mind that this rule only impacts federal classification analysis, and they remain obligated to comply with state or local rules addressing minimum wage and overtime pay requirements.

The Department is seeking public comments regarding the proposed rule within 60 days after publication in the Federal Register.