By Attorney Nicholas J. Vlies of Lin.Liebmann LLC
On July 6, 2015 the Wage and Hour Division of the Department of Labor issued a proposed rule that, among other things, seeks to change the minimum salary an employee must be paid to qualify as an exempt executive, administrative or professional (“EAP”) employee. If an employee meets the EAP exemption criteria, then the employer is not required to pay that employee for overtime.
As it stands, the minimum weekly salary to qualify for the EAP exemption rate is $455 per week. The proposed rule seeks to change the minimum salary to the 40th percentile of full-time salaried employees, which based on 2013 salary data is $921 per week and $970 per week ($50,440 per year) based on projected 2016 salary data. Moreover, the minimum salary would automatically adjust each year. The Department of Labor has proposed two possible methods to update the minimum salary automatically each year. The first method pegs the minimum salary to the 40th percentile of full-time salaried employees. The second method adjusts the minimum salary based on inflation.
Additionally, the Department of Labor is considering whether nondiscretionary bonuses should be included in calculating the EAP exemption salary threshold. In the event that the Department decides to include nondiscretionary bonuses, the bonuses would only be permitted to account for 10% of the minimum salary level. For example, if the minimum salary to qualify as an exempt EAP employee is $50,000 per year, nondiscretionary bonuses would only be able to account for $5,000 of the $50,000 threshold. Moreover, if discretionary bonuses are included, then payment of such bonuses will likely be required on a monthly or more frequent basis. At this point in time the Department of Labor is not considering the inclusion of discretionary bonuses in calculating the total salary for EAP exemption purposes. The Department is also not considering the inclusion of annual catch-up payments.
The proposed rule also aims to increase the salary level to qualify for the highly compensated employees (“HCE”) exemption. Currently the HCE exemption salary threshold is $100,000.00 per year, but the proposed rule would increase the threshold to a salary equal to the 90th percentile of earnings for full-time salaried workers. Based on the 2013 salary data, the HCE exemption salary threshold would be $122,148 annually. One of the two automatic update methods mentioned above would be used to update the HCE exemption salary threshold annually.
Employers still have time to plan for the adjustments that will be necessary in light of the proposed changes as the final rule will likely not be published until sometime in 2016. While the final rule could differ from the proposed rule, employers would be wise to begin planning for significant changes in 2016.
If you have any questions regarding the proposed rule feel free to call us at 920-393-1190.