On March 7, 2019, the U.S. Department of Labor released a long-awaited proposal to increase the minimum salary for employees who may be classified as exempt under the “white collar” exemptions of the Fair Labor Standards Act to $679 per week — $35,308 annually. This is an increase from the current salary level of $455 per week or $23,660 annually. If the proposal is implemented, it will mark the first update to the overtime rule’s standard salary level since 2004.
In 2016, the DOL finalized an overtime rule that would have more than doubled the minimum salary for exempt employees to $913 per week, the equivalent of $47,476 annually, beginning Dec. 1, 2016. A coalition of states and business groups challenged the 2016 final rule in federal court in Texas, and the court agreed, invalidating the 2016 final rule completely. An appeal of that decision is being held in abeyance, and the DOL is enforcing prior regulations in effect, including the $455 per week standard salary level.
Unlike the 2016 rule, this proposal does not include automatic increases to the minimum salary level. Instead, the DOL believes that the standard salary level should be updated once every four years via the rulemaking process.
So what are the practical implications of the DOL’s current proposed salary level for Arkansas employers? Thankfully, not as much as the now-dead 2016 salary increase to $47,476 annually. The current proposal was derived by looking at the 20th percentile of earning for two combined groups: the South (the region where employees earn the least amount of wages) and the retail sector. The statistical reality that Arkansas employees earn lower wages than much of the country means that Arkansas employers, along with employers in other Southern states, are more likely than employers in other parts of the country to feel the effects of the increase. However, the increase should come as far less of a shock because of its relative modesty compared with the 2016 proposal. Additionally, because the 2016 rule was stalled so near to its implementation, many employers made adjustments in order to ensure compliance prior to its invalidation, which may render any further adjustments unnecessary.
Nevertheless, the DOL’s own estimates suggest that more than 1 million employees will either get a pay increase or become eligible for overtime by becoming reclassified as nonexempt. Ideally for Arkansas employers, the affected employees will be very close to the exemption salary level, and employers can make the relatively easy decision to increase their employees’ salaries to $679 per week. For employees paid significantly less than $35,308 per year, employers will likely elect to classify them as nonexempt and begin paying any overtime worked in applicable workweeks. With this in mind, it would be a good time for all employers to ensure that employees are properly classified — even if employees are making the required $35,308 per year, they must still meet the appropriate duties test to be correctly classified as an exempt employee.
What happens now? The proposed rule is not final yet; a comment period will begin once the proposed rule is formally published in the Federal Register and will continue for 60 days. While there is no guarantee of what the final salary level will be, employers should plan on increases to their labor costs beginning in 2020. Employers who oppose the proposed increase should submit comments during the designated period. Employers may also submit comments on other proposed changes to the overtime rule, which include allowing employers to count nondiscretionary bonuses and incentive payments, including commissions, to satisfy up to 10 percent of the proposed $35,308 salary, provided such bonuses are paid annually or more frequently. The proposed rule also increases the salary threshold for highly compensated employees from $100,000 to $147,414.
While employers are not required to make changes to their practices until the rule is finalized, ignorance is clearly not bliss when it comes to the DOL and its proposed rule. Prudent employers will do salary reviews now to be prepared to act quickly. It is highly unlikely that this salary level increase will face a fate similar to the 2016 rule. Rather, the impending modification represents a good time to evaluate internal practices through a self-audit or an audit performed by legal counsel.
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Missy McJunkins Duke is an attorney with the law firm of Cross Gunter Witherspoon & Galchus PC in Little Rock. She defends employers in wage-and-hour, harassment, discrimination and Family & Medical Leave Act litigation. Email her at MDuke@CGWG.com. |