The Saga Continues: The Department of Labor’s New Proposed Salary Minimum
March 20th, 2019 by David Minces
Our blog has periodically covered the now 5 year journey of the Department of Labor’s efforts to update the salary minimum provision of the Fair Labor Standards Act. Recently, the DOL proposed a compromise of sorts, decreasing their $47,476 proposal from 2016, which was invalidated by the decision of an Eastern District of Texas judge in September 2017, to $35,308.
Why does it matter?
The Fair Labor Standards Act (FLSA) is a complex and frequently litigated federal law that was established over 80 years ago to protect the American workforce. Many of the “standard” employment principles we have today were established by the FLSA. The concepts of the 8-hour work day and 40-hour workweek were created by the statute, as well as a minimum wage, prohibitions against child labor and other benchmarks. A major component of the FLSA is overtime pay for hours worked over 40 in a workweek. While numerous exemptions may apply that do not require employers to pay employees overtime wages, in order to qualify for an exemption, an employer generally must pay employees at a rate not less than $455 per week ($23,660 annually). By increasing the salary minimum, hundreds of thousands of exempt employees will experience salary increases or changes to the way they are paid.
History and Inflation
Prior to 2004 (the most recent change), the salary minimum was $155 per week, or $8,060 per year. In the 15 years since the increase to $455, no changes have been made to the salary minimum. To put it in perspective, when accounting for inflation the value of $455 in 2004 is equivalent to about $609 in 2019. In recent years numerous movements for “living wages” have swept the country, with various states, cities and counties implementing minimum wages well above the federal rate of $7.25. Along with this movement came an initiative to increase the salary minimum component of the FLSA for employees that were exempt from overtime pay. In 2015, President Obama proposed an increase to $50,400 annually, or $969 per week, over double the current rate. The DOL adjusted this proposal and ended up using the 40th percentile of the lowest-wage census region (the South) to come up with a slightly lower proposed salary minimum. The DOL’s final rule, which would have increased the minimum to $47,476 annually, was published in mid-2016 and set to go into effect on December 1, 2016. Many employers prepared for the change by reclassifying employees formerly paid a salary to hourly, non-exempt employees, or increasing their pay to comply with the increased salary floor. However, just a week before the rule would have became effective, a Texas judge signed an order granting a preliminary injunction against the increase and thereby postponing it pending appeal to the Fifth Circuit Court of Appeals.
Turning of the Tide
Two main factors that have hindered and caused delay in this change are timing and politics. It is no secret that we live in divisive times and issues like wages now divide along the party line. Between 2015 and 2017, “the left” championed for increased wages, “the right” fought to keep them down. Because the rule was set to go into effect just 1 month before President Trump took office, the political timing was ripe for interfering. With the change of commander-in-chief came a change in the DOL Secretary. Numerous delays on appeal of the Texas injunction occurred to allow new DOL Secretary Acosta time to familiarize himself with the proposed rule and prepare for the appeal. The DOL ultimately requested dismissal of their appeal in September of 2017.
Predictions for the New Rule
The DOL’s new proposed rule formally rescinds the Department’s 2016 rule and does the following:
- Increases the salary minimum from $455 per week ($23,660 per year) to $679 per week ($35,308 per year)
- Increases the total annual compensation requirement for “highly compensated employees” from $100,000 to $147,414 (note: the minimal duties test for this exemption will remain unaltered)
- Allows employers to use “certain nondiscretionary bonuses and incentive payments” to constitute up to 10% of the increased weekly salary minimum
The proposed rule does not change the duties tests for the various available exemptions.
If the new rule goes into effect, the start date would be January 1, 2020. While it seems like we are getting closer to a new salary minimum, delay could again impact the change. 2020 is an election year and jobs and wages are yet again a hot button issue. Nonetheless, if and when this long-anticipated change takes effect, employers will need to be prepared. Minces PLLC can help your business prepare for the change, or ensure you are being properly paid as an employee if you think your employer may not be complying with federal wage and hour law. Contact our office if you have questions about the FLSA or its potential upcoming changes.
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