The Salary is Set: Department of Labor Issues New Salary Rule for “White Collar” Overtime Exemptions
by David B. Walston, Partner
The U.S. Department of Labor under the Obama Administration announced in 2016 the implementation of a rule that would increase the salary threshold for the “executive” and “administrative” exemptions from $23,660 per year to $47,476 per year. The rule was subsequently blocked by a federal court, and attention turned to the question of if and when an adjustment would be made by the Trump Administration. The Department of Labor answered that question yesterday, announcing a rule raising the minimum salary threshold for the FLSA’s “white collar” exemptions to $35,308 per year. (The increase is not surprising given that the former salary threshold of $23,660 per year was established in 2004).
Just paying an employee a salary of $35,308 is not the only hurdle employers have to clear to have an employee qualify for a white collar exemption. There are restrictions against reducing the salary for certain types of absences from work. A salary may only be reduced for:
- Full day absences for personal reasons.
- Full day absences for sickness or disability.
- Disciplinary suspensions.
- Family and Medical Leave Act absences (either full or partial day absences).
- To offset amounts received as payment for military pay.
- The first or last week of employment in the event the employee works less than a full week.
- Any full work week in which the employee does not perform any work.
Absent one of these circumstances, a reduction of salary eliminates the exemption.
More significantly, employers must remember each “white collar” exemption carry a “duties” test as well.
Executive Exemption: The duties test for the executive exemption requires:
- The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise;
- The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and
- The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.
Administrative Exemption: The duties test for the administrative exemption requires:
- The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
- The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.
Pieced together, the white collar exemptions carry three requirements:
- The amount of salary
- Prohibition of certain reductions of salary
- The duties analysis
The salary threshold remains at the forefront. It remains to be seen if lawsuits or bills
presented in Congress will challenge the new rule, but that is a blog for another day.