This Special Bulletin was authored by Tony G. Carvalho.

On March 7, 2019, the Department of Labor (DOL) published a Notice of Proposed Rulemaking that, if implemented, will affect the minimum wage and overtime-exempt status of many employees under the Fair Labor Standards Act (FLSA). The proposed changes concern the “salary basis test” applicable to the “white collar” exemptions for executive, administrative, and professional employees. The changes will also alter the test for “highly compensated employees.”

To qualify as exempt from the FLSA’s minimum wage and overtime requirements pursuant to a white collar exemption, an employee must first meet the salary basis test. Part of that test is a minimum salary the employee must receive. Since 2004, the salary basis test required the employee to receive a minimum salary of $455 per week, or $23,660 per year[1].  By this proposed rulemaking, the DOL proposes to increase this minimum to $679 per week, or $35,308 per year.

Another proposed change to the white collar exemptions is an amendment to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level. Under the new proposal, these qualifying bonuses/incentive payments can be paid annually or more frequently.

The DOL also proposes an increase to the minimum total annual compensation requirement for exempt “highly compensated” employees. Currently, to meet the FLSA overtime exemption as a highly compensated employee, an employee’s total annual compensation must be at least $100,000. The new minimum proposed by the DOL will be $147,414 total annual compensation. This “total annual compensation” must include at least $679 per week paid on a salary basis. Total annual compensation may include commissions, nondiscretionary bonuses, and other nondiscretionary compensation.

Finally, although not a part of the current proposal, the DOL announced its intent to issue further proposals to update the salary thresholds for the white collar and highly compensated employee exemptions once every four years.

The DOL has requested comments on these proposed changes. The comment period will begin once the Notice of Proposed Rulemaking is officially published in the Federal Register and will remain open for 60 days thereafter. Those interested can submit their comments online here: https://www.regulations.gov/  using Regulatory Information Number (RIN) 1235-AA20.

LCW will continue to monitor the comment period and will provide further updates as the final rulemaking unfolds. Please visit our website at lcwlegal.com for regular briefings on the FLSA.

[1] The current minimum salary to meet the salary basis test ($455 per week) is actually lower than California’s minimum wage of $12,00 (or $480 per week).