DOL Raises Salary Level for Exempt Employees

Date: March 15, 2019
By: Kevin C. McCormick

Last week, on March 7, 2019, the U.S. Department of Labor “DOL” announced a notice of proposed rule-making that would increase the salary threshold for employees eligible to collect time and one-half pay for hours worked over forty (40) in a workweek.  Under the terms of the proposed rule-making, exempt employees would now have to earn at least $679 per week or $35,308 per year to be considered exempt under the so-called White Collar Exemption in Section 13(a)(1) of the Fair Labor Standards Act (the “Act”). 

As many Maryland employers may recall, in the waning days of the Obama Administration, the DOL had introduced a controversial proposal to raise the salary level for exempt status from the then current $23,660 to $47,476.  Such a dramatic increase presented significant problems for many employers who believed they had salaried-exempt employees, but did not pay such a high salary.  Fortunately, the Obama Era DOL rule was enjoined by a Texas District Court and never took effect. 

In the meantime, DOL promised to review this issue and, last week, issued its new proposal. 

In addition to raising the salary level required to be considered exempt under Section 13(a)(1) of the Act, the new DOL proposal also makes several other significant changes.  First, DOL has proposed to significantly increase the upset salary level for highly compensated employees.  The new figure is $147,000, up from $100,000 from the existing level and a $13,000 higher than the amount proposed by the Obama Administration.  The exemption for highly compensated employees is designed to allow employers to use a more streamlined duties test for determining whether a worker qualifies as overtime exempt.  Keep in mind, however, that in the event the highly compensated employee may not meet this new higher salary threshold of $147,000, the employee may, nevertheless, still be exempt under the traditional criteria requiring payment on a salary basis of at least $35,308 and satisfying the requisite duties test. 

Second, the proposed Rule does not include automatic salary updates as did the Obama Era proposal.  Under the Obama proposal, the exempt salary levels would have been automatically increased every three (3) years.  Now, under the new proposed Rule, the salary levels would be reviewed every four (4) years, but only after the DOL issues notice and comment in the Federal Register to allow the public to comment on any proposed increases.

Finally, the new DOL proposal allows employers to include up to ten percent (10%) of a worker’s salary, certain non-discretionary bonuses and incentive payments like commissions in determining whether the employee has satisfied the new salary levels.

The DOL’s new proposal is open for public comment for sixty (60) days and could be revised further or challenged in court.  If neither occurs, the new Rule should take effect in January, 2020.  Since it is very likely that the new salary levels will remain intact, it is probably a good time for all Maryland employers who may be effected by this new Rule to begin a careful review of those employees whom they believe are exempt.  This requires analyzing not just whether the employee is paid on a salary basis (no part day deductions for lack of work) but also whether they meet the specific administrative, professional or executive duties as set forth in 29 C.F.R., Part 541 of the Regulations.  In order to be considered exempt, the employee must meet both the salary basis test and the duties test.  It would also be wise to hold off announcing any changes in your payroll practices based on this review until the proposal become final with a clear effective date.