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Aug. 6 - Dept. of Labor proposal will significantly raise salary threshold for Salaried, Non-Exempt Workers in 2016

Category: National News

Coastal Empire News Staff Report

August 6, 2015 – If you have salaried employees, such as District Managers at stores or “Managers” of sales territories, a proposal by the Dept. of Labor may affect your company.

The Labor Dept. has released a long-awaited proposal revising the requirements for employees to be exempt from overtime pay under the Fair Labor Standards Act.

The proposal would more than double the salary basis test -- the level below which all employees must be paid overtime beyond 40 hours per week, regardless of their duties, from the current level of $455 per week (or $23,660 per year) to $921 per week (or $47,892 per year) starting in 2016.

The threshold will also increase every year, based on economic indicators.

And, there is only a 60-day comment period, and the clock started on July 1. 

The proposal would also increase the total annual compensation requirement for highly compensated employees to $122,148 and establish a mechanism for automatically updating the salary and compensation levels going forward to ensure that they will continue to provide a useful and effective test for exemption. The Department of Labor did not propose changes to the duties tests under FLSA, but it did request comment on whether the tests should be changed.

On March 13, 2014, President Obama signed a Presidential Memorandum directing the Department to update the regulations defining which white collar workers are protected by the FLSA’s minimum wage and overtime standards.  79 FR 18737 (Apr. 3, 2014).  Consistent with

the President’s goal of ensuring workers are paid a fair day’s pay for a fair day’s work, the memorandum instructed the Department to look for ways to modernize and simplify the regulations while ensuring that the FLSA’s intended overtime protections are fully implemented.  

Since 1940, the regulations implementing the white collar exemption have generally required each of three tests to be met for the exemption to apply: (1) the employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the “salary basis test”); (2) the amount of salary paid must meet a minimum specified amount (the “salary level test”); and (3) the employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations (the “duties test”).

One of the Department’s primary goals in this rulemaking is updating the section 13(a)(1) exemption’s salary requirements, they state.  The Department has updated the salary level requirements seven times since 1938, most recently in 2004.  Under the current regulations, an executive, administrative, or professional employee must be paid at least $455 per week ($23,660 per year for a full-year worker) in order to come within the standard exemption; in order to come within the exemption for highly compensated employees (HCE), such an employee must earn at least $100,000 in total annual compensation.   The Department has long recognized the salary level test as “the best single test” of exempt status.  If left at the same amount over time, however, the effectiveness of the salary level test as a means of determining exempt status diminishes as the wages of employees entitled to overtime, according to the Dept.

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