As reported last week in an ASE breaking news update, the U.S. Department of Labor (DOL) released its long-anticipated changes to its white-collar exemption regulations. The big change was a “split the baby” approach to resolving a regulatory agency overreach by the DOL back in 2016.
The DOL published a change back in 2016 increasing the salary level test up to $47,476/yr. ($913/wk.). Shortly thereafter a Texas Court ruled this substantial increase over the $23,660 ($455/wk.) amounted to the DOL amending the Fair Labor Standards Act (FLSA) by regulatory fiat – a no-no legally. So, for the past few years and with a change in the White House, the DOL has been working on a compromise that it released last Thursday evening.
2019 Proposed Exemption Regulations:
- The new proposed salary level of $35,308yr ($679/wk.) is a compromise intended to set a realistic level that is reasonable to meet when determining a position as Executive, Professional, or Administrative exempt. This split the difference, almost to the dollar, between the current salary level of $23,660 and the Obama era salary level of $47,476 that the Texas Court enjoined.
- The proposed rules also move the highly compensated salary level to $147,414/yr.
- The proposed rules also provide for the use of non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the salary level test.
However as per the 2016 rules, the new rules do not propose automatically increasing the salary level rate by some sort of periodic, indexed method. However, the proposed rules do request public input on this issue during the 60-day comment period, and the proposed rule’s preamble states the DOL would plan on updating the rules every four years. This would seem reasonable given the last formal change to these rules was back in 2004. It took until 2016 to make a formal change to them. It took an additional three years to get revised proposed rules we are looking at today, and if they are accepted it is projected the change will not go into effect until 2020. Going forward the rule change process would follow traditional notice and comment period.
The proposed rules do not suggest having different salary levels for each exemption – Professional, Administrative, and Executive – as they did last go around. The previous regulations also proposed making some job duty revisions that thankfully are no longer included.
In addition, the previous regulations asked commenters whether it would make sense to have different levels by geographic region to account for cost of living differentials. This is no longer in the proposed regulations.
The proposed change to the highly compensated salary level from $100,000 to $147,414 is an almost $50,000 leap and a $13,000 increase from the Obama era highly compensated salary level of $134,000. Employers that use this exemption must pay at least $147,414, and the position must meet at least one of the primary responsibilities outlined in the job duties section of the Professional, Administrative, or Executive exemptions.
With setting the new salary level test at just over $35,000/yr., the DOL has used an old benchmark of setting the salary level test to the 20th percentile of full-time worker earnings in the south and in the retail sector. This is the same method used back in 2004 to set the salary level at $23,660. However, many agree that the 2004 salary level test of $23,660 was never challenged legally and therefore the proposed rate will most likely be defensible if challenged again this time.
Source: 5 Things to Know About the DOL’s New Overtime Rule Law 360 (3/8/2019) By Vin Gurrieri