Salary Levels are Rising (or Are They?)

Vicki Lambert's Profile

 …It’s still anyone’s guess…but we are getting closer!

On March 7, 2019, the U.S. Department of Labor (DOL) issued a news update concerning the new salary levels for employees to qualify for the Executive, Administrative, and Professional exemptions under the Fair Labor Standards Act (FLSA).  The news update acknowledges that the current salary level of $455 per week, in effect since 2004, needs to be increased but not to the level that was required by the Obama Administration in 2016 ($913 per week). The Department is proposing to adopt a salary level that uses a clear and predictable methodology for employees and that will also comply with the FLSA and the recent court decisions concerning the Obama Administrations regulations that were invalidated by the United States District Court for the Eastern District of Texas. The rule was submitted on Appeal to the United States Court of Appeals for the Fifth Circuit but was being held in suspension.

This rulemaking proposes to rescind the 2016 rule formally and replace it with this current rule. The same methodology is being used as in the 2016 rule.  The level is set at approximately the 20th percentile of earnings for full-time salaried workers in the lowest region (South). Applying the 2017 data and projecting forward to January 2020 (when the rule should be effective) this results in a proposed standard salary level of $679 per week or $35,308 per year. However, the Department anticipates using the 2018 data in developing the final rule.

One holdover from the 2016 Obama Administration rule is the ability to count nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary level test.  These bonuses must be paid annually or more frequently. The new rule will incorporate these types of bonuses.

The DOL is not proposing any changes to the standards duties tests at this time.

For employees who are exempt under the Highly Compensated Employee test, this level will be increasing as well.  The 2016 rule increased that $100,000 threshold to $134,004.  This new rule, using the same methodology of the 90th percentile for full-time salaried employees nationally as the 2016 ruling is projecting that the final level will be $147,414 for 2020.   

The automatic updates contained in the 2016 rule will not be adopted.  Instead, the DOL proposes to update the earnings thresholds every four years to prevent the levels from, once again, becoming outdated.  

The DOL is now conducting a 60-day comment period on the new rule.  Click here to read the new proposed rule.  The address to comment is on page 2 of the report.

We will see where the rule stands after the 60-day comment period. Until then we just wait…

Learn much, much more in Vicki's courses on Illumeo.

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Vicki M. Lambert, CPP, has more than 35 years of hands-on experience in all facets of payroll, including wage and hour law and tax compliance and is a prolific author, trainer, and lecturer.