Raising the Salary Basis Threshold: Change on the Horizon

RaisingSalary.BlogUnder the current Fair Labor Standards Act (FLSA) regulations, an employee who meets the duties test for an administrative, executive, or other “white collar” professional must receive at least $455 per week ($23,660 annually) on a salary basis to be exempt from minimum wage and overtime. Although forecasts and predictions are better left to meteorologists and bookies, it seems likely the minimum salary employers must pay to exempt employees will increase drastically in the near future.

In a March 13, 2014 letter to U.S. Department of Labor (DOL) Secretary Thomas Perez, President Obama directed the Secretary to “propose revisions to modernize and streamline the existing overtime regulations.” The president reasoned this change was necessary to modernize the outdated exemptions from overtime which “have not kept up with our modern economy.”

In response to a growing concern that modernizing the exemptions meant increasing the salary basis test and narrowing the duties test, the HR Policy Association also sent a letter to Secretary Perez urging a fundamental reexamination of the FLSA, with particular emphasis on revising and clarifying the white-collar-exemption rules to “provide greater clarity and consistency in a manner that reflects the modern workplace.” In November, 2014, the DOL regulatory agenda indicated the Department’s plans to publish a Notice of Proposed Rulemaking (NPRM) in February, 2015, “defining and delimiting the [white collar] exemptions.” While the NPRM has been delayed, sources expect the DOL to publish it in March or April.

In a January 16, 2015, letter to President Obama, 32 U.S. congressional representatives urged President Obama to increase the salary basis test to $1,327 per week (or $69,000 annually). On January 28, 2015, the Economic Policy Institute published a letter written by EPI’s President and 11 other labor economists. The authors recommended Secretary Perez also increase the salary basis threshold to “about $50,000” annually. Finally, on January 29, 2015, 26 U.S. Senators sent a letter to President Obama encouraging him to increase the “overtime threshold to at least $1,090 a week ($56,680 a year) and index it to inflation.”

The indications are that the minimum salary employers must pay exempt employees will increase dramatically very soon. Employers should begin planning for the changes now and be prepared to express their opinions and concerns once the DOL publishes the Notice of Proposed Rulemaking.