Salary Threshold for White Collar Exemptions

Earlier this month, the US Department of Labor (DOL) issued new proposed rules, raising the annual minimum salary threshold for “white collar” overtime exemptions (executive, administrative, and professional) to $679 per week ($35,308 annually). This is nearly a 50% increase from the current FLSA salary level of $455 per week ($23,660 annually) but well below the Obama-era proposal of $913 per week ($47,476). The newly proposed rule rescinds the 2016 Obama rule, which was blocked by a permanent injunction issued by a Texas district court judge.

Under the proposed rule, the annual FLSA compensation level for “highly compensated employees” will increase from $100,000 to $147,414.  Highly compensated employees must still perform exempt duties for the exemptions to apply, but the duties test for such employees is easier to satisfy.  Washington employers must remember, however, that the “highly compensated employee” exemption is not recognized in our state.

Consistent with the Obama-era rule, employers will be permitted to use nondiscretionary compensation, including commissions, to satisfy up to 10% of the new salary level.  Under the new proposed rule, however, that 10% of compensation may be paid annually, rather than quarterly as previously proposed.  The new proposed rule also permits a catch-up payment at the end of the year if the nondiscretionary pay is not large enough to satisfy the required salary (no more than 10% of the standard salary level – $3,530.80).

Finally, the DOL has not proposed any changes to the duties test and has not proposed any automatic increases (where the Obama-era rule called for automatic increases every three years). Employers will have 60 days to submit comments to the DOL (www.regulations.gov) in the rulemaking docket RIN 1235-AA20).  A final rule will be published after those comments have been considered. The DOL anticipates the rule will be effective January 2020.

Associated Industries will continue to monitor state efforts to increase the salary threshold for white-collar exempt employees – which will likely be higher than the newly proposed federal salary threshold.  Washington employers will be required to comply with the salary threshold that provides the most benefit to the employee.

 

Written by:

Angela Hayes,

Senior Legal Counsel