DOL’s proposed amendments substantially increase minimum salary requirements for white collar exemptions

Will you need to give your exempt employees a raise?

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This summer, the Department of Labor (“DOL”) released proposed amendments to the “white collar” exemption standards under the federal Fair Labor Standards Act (“FLSA”). The white collar exemptions from the FLSA overtime requirements include the executive, administrative and professional classifications. A 60-day public comment period ended on September 4, 2015 and now the DOL will review and evaluate the public comments submitted and issue final amendments, which may differ from the proposed amendments. It is unknown exactly when the final amendments will be issued, however, they are expected to take effect some time in 2016.

What do the proposed amendments change?

  1. The most impactful change of these proposed amendments may be the salary threshold requirement for exempt status. Currently, a white collar exemption under the FLSA applies to employees whose job functions satisfy a duties test and who are paid a salary of at least $23,660 per year (or $455 per week). The proposed amendments raise the salary requirement to $47,892 per year (or $921 per week).
  2. The FLSA also has a “highly compensated” exemption for those employees who perform certain duties and who receive at least $100,000 per year. The proposed amendments raise the threshold for this exemption to $122,148 per year.
  3. The DOL is also considering a mechanism by which these threshold amounts are automatically updated each year. It invited comment on whether such adjustments should be in accordance with a set applicable percentile level of current salaries, or in accordance with Consumer Price Index indicators. The proposed threshold levels, above, are tied to the 40th percentile of current salaries for the basic white collar exemption and the 90th percentile for the highly compensated exemption level.
  4. Although it did not articulate any specific changes to the duties test of the exemption standards, the DOL solicited comment as to any changes that should be made to the duties test, including whether a certain minimum percentage of the employee’s time must be spent on exempt duties, similar to the California white collar exemption test.

Considerations for California employers

California has its own white collar exemption standards, including a duties test and salary minimum (currently $37,440 annually). As such, the salary minimum under the DOL’s proposed amendments is substantially higher than California’s own salary minimum. It is possible that the California legislature could later raise the California minimum salary requirement to meet or exceed the federal minimum. Otherwise, should a gap exist between the minimum salary requirements under federal and California law, California employers are left with a few options that include: 1) increasing salaries to meet the federal minimum in order to preserve the exemptions; 2) reclassifying employees as non-exempt and paying daily and weekly overtime under both federal and California law; or 3) maintaining salaries that meet the California minimum but not the federal minimum and paying only weekly overtime as required under federal law.

Impact on employers

These amendment proposals are merely proposals and the DOL may modify them based on feedback it received during the comment period, including possibly decreasing the minimum salary standards and amending the existing duties test. In any event, employers should begin assessing the impact of these possible changes on their workforces by identifying any exempt employees who would not meet the proposed amended standards and evaluating the costs, feasibility and legality of possible adjustments. Employers are advised to watch for updated information and to consult with employment counsel to maintain compliance with applicable laws. For further information, see the DOL Fact Sheet on the amendments.