Minimum Salary Thresholds Increasing For Overtime and Minimum Wage Exemptions

A new rule that was recently proposed by the Department of Labor would increase the minimum salary thresholds above which employees can be exempted from minimum wage and overtime laws. 

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Current EAP exemptions, for example, allow for executive, administrative, and professional employees who earn $684 dollars per week ($35,568 per year) or more to be exempted from minimum wage and overtime regulations, but the proposed change would increase that pay minimum to $1,059 per week or $55,068 per year.

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The new rule also proposes raising the minimum salary for employees to qualify for the highly compensated employee (HCE) exemption as well. Currently, for employees to be exempted from minimum wage and overtime requirements as a result of their high level of compensation, they must be paid a minimum of $107,432 per year, but under the intended rule changes that threshold will be raised by more than a third to $143,988 per year. 

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Further, the new rule as proposed will also automatically increase these pay thresholds for EAP and HCE exemptions every three years to ensure the minimum pay scales stay relevant in light of evolving market conditions. 

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Before the new regulations could take effect, there must first be a 60-day period during which the public, stakeholders, and otherwise interested parties can provide commentary on the proposal. Department of Labor officials will then review those comments and potentially revise the new rule in its current form before finalizing it. 

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Following the 60-day comment period, it’s likely that the rule wouldn’t go into effect for at least another 60-days, so the earliest that the new rule will go live is probably at least 4 months out still. That said, the potential for legal action when new rules are announced is significant, so delays in the implementation of these new regulatory thresholds beyond the standard predicted timeline are a real possibility. 

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Some of the adjustments that employers will have to make in response to the proposed changes include:

• Reclassifying employees who were previously exempt but no longer meet the minimum pay thresholds, which may be a significant administrative burden;
• Budgeting for overtime pay in consideration of the formerly exempt employees that will now qualify for overtime when they exceed 40 hours in a given week;
• Making adjustments to scheduling and operational planning in order to minimize the anticipated additional overtime pay expenditures;
• Training formerly exempt employees on how to track their hours, breaks, and overtime in line with company policy; and 
• Ensuring that any new protocols and operational plans that are developed in response to the new regulatory environment also comply with any relevant state laws covering minimum wage and overtime issues. 

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Even though the proposed rule changes have yet to be formally adopted and enacted, if history is a guide, the new minimum pay thresholds are likely going to be pretty close to the finalized rule. 

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Employers that want to stay ahead of the curve may want to begin considering how the new rules will affect the exemption status of their own employee pool in order to start the process of budgeting and adjusting operations now to maintain compliance and ensure the transition is smooth. 

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You can read more about this proposed rule change here.