Minimum Salary For Exempt Employees May Double Under New FLSA Regulations

Volume 14, Issue 2
January 29, 2015

In its Fall 2014 Agency Rule List, the U.S. Department of Labor (DOL) added an entry pertaining to its proposal to implement President Obama's directive to modernize the Fair Labor Standards Act (FLSA) regulations for overtime exempt executive, administrative, and professional (white collar) employees. The entry indicates that a proposed rule will be published by the end of February 2015.

Under the FLSA, executive, administrative, and professional employees are exempt from federal overtime premium pay requirements if such white collar employees meet specific duties tests and are compensated in compliance with the FLSA's "salary basis" test, as set forth in 29 C.F.R. § 541.602. One of the core requirements of the salary basis test is the employee's regular receipt, on a weekly or less frequent basis, of a predetermined amount constituting all or part of the employee's compensation, which is not subject to reduction because of variations in the quality or quantity of the work performed. Presently, the FLSA regulations set the minimum salary rate at $455 per week, which equates to $24,000 annually.

Any revised FLSA regulations will include an increase to the $455 per week threshold. As the White House observed last year, only 12% of all salaried employees fall below the FLSA's minimum salary threshold, compared to 65% of employees in 1975 when the FLSA regulations set a minimum salary threshold of $250 per week. New York and California already require employers to pay higher minimum salaries to white collar exempt workers ($600 per week in New York, increasing to $675 per week by 2016; $720 per week in California, increasing to $800 per week by 2016).

As reported recently in a Huffington Post article, there are signs the Obama Administration is "leaning toward" setting the minimum salary for the overtime exemptions at $42,000 per year (just over $800 per week). The article notes that the DOL's new chief economist, Heidi Shierholz, advocated in August, while still with the liberal-leaning Economic Policy Institute (EPI), that the Administration should increase the minimum salary threshold to $58,000 (approximately $1,115 per week) with Democratic Senators lobbying for an increase to $54,000 (approximately $1,038 per week).

A substantial increase to the FLSA's minimum salary requirement for exempt "white collar" employees would have the most impact on employers in the production, service, and retail industries that have large numbers of low paid supervisors.

KZA Employer Report articles are for general information only; they are not intended and should not be construed to be legal advice. Reading or replying to such articles does not establish an attorney-client relationship. In addition, because the subject matters and applicable laws discussed in Employer Report articles are often in a state of change and not always applicable to every type of business entity or organization, readers should consult with counsel before making decisions based on the same.