Exemption May Require Salary of Over $50,000

 
The United States Department of Labor (“DOL”) is proposing a significant increase to the salary employers must pay many employees in order to “exempt” them from overtime, a change that would affect the payroll of almost all employers. The Fair Labor Standards Act (“FLSA”) guarantees that most employees will receive time-and-a-half overtime pay for hours worked over 40 in a workweek. The FLSA exempts certain categories of employees from this requirement, especially certain executive, administrative, professional, outside sales and computer employees (these are often called the “white collar” exemptions). To be considered exempt, employees must be paid a minimum amount on a salary basis. Currently, the minimum salary level, which was last updated in 2004, is $455 a week ($23,660 for a full-year worker).

The rulemaking announced by the DOL today would increase that threshold to $921 per week (as of 2013) and then increase the threshold annually to keep up with the cost of living. The DOL’s stated goal is to keep the salary threshold at the 40^th percentile of weekly earnings across the country. The DOL estimates that the minimum salary to make an employee eligible for exemptions when the rule goes into effect will be $970 per week (or $50,440 for a full year).

This is just an announcement of an intended rule. The DOL’s next step will be to solicit comments about the proposal for the next 60 days. After that, the DOL will issue a final rule, which may or may not change the salary threshold, with an effective date by which all employers must comply. That effective date will likely be in late 2015 or early 2016.

Exemptions not based on the white-collar exemptions (for instance, motor carriers) are not affected by the proposed rule, nor has the DOL changed the duties an employee must perform to meet the white collar exemptions. The DOL has invited comment on whether changes to the duty tests are necessary.

Spilman Thomas and Battle will monitor developments and share them with our clients and friends as they are announced. Check back often.