In preparing for the soon-to-be published revisions to the federal overtime regulations under Part 541 of the Fair Labor Standards Act (FLSA), one of the significant challenges employers face is continuing uncertainty as to what the new minimum salary threshold will be for the executive, administrative, and professional exemptions. The most likely number is $972 per week, which annualizes to $50,544.
Why $972 per week? Because that is the current 40th percentile of weekly earnings for full-time salaried workers according to the Bureau of Labor Statistics (BLS), and the 40th percentile of earnings for full-time salaried workers is the standard identified by the U.S. Department of Labor (DOL) in the proposed revisions to the overtime regulations that it published in 2015.
When it published its proposal, the DOL reported that the 40th percentile was $921 per week or $47,892 annually. At that time, the DOL projected that the 40th percentile would increase to $970 per week for the first quarter of 2016, and it anticipated using 2016’s first quarter figures when issuing its final regulations.
The DOL sent its proposed final regulations to the Office of Information and Regulatory Affairs (OIRA) of the Office of Management and Budget for review in mid-March of 2016, which was earlier than expected. At that time, the first quarter statistics for 2016 were not yet available, but the fourth quarter statistics for 2015 showed that the 40th percentile was at $972 per week, which is only $2 per week higher than what the DOL had projected would be the number in the final regulations. The first quarter statistics for 2016 recently were published, and the 40th percentile remained at $972 per week. Thus, it seems highly likely that $972 per week will be the salary threshold in the final regulations when they are published.
Assuming that $972 is the new number, the minimum salary threshold will more than double under the final regulations. Currently, the minimum threshold is $455 per week, which annualizes to $23,660 per year. Although there has been a great deal of opposition to this large of an increase—particularly if the increase is not going to be implemented in stages—the DOL has been tight-lipped about whether it intends to move away from the proposed 40th percentile standard. Therefore, employers may want to anticipate that $972 per week, or $50,544 per year, will be the new minimum, and to plan accordingly, as we expect the final regulations to become effective later this year. The effective date will be dependent on the date the final regulations are published in the Federal Register and will be at least 60 days after publication. However, we expect publication to occur before the end of May, which means the effective date could be in July.
The DOL also has said that the final regulations will include some form of indexing, which means that $972 will not be a stagnant threshold number. Instead, the minimum salary threshold likely will increase on an annual basis, with the size of the increase dependent upon the method of indexing used.
In its proposed regulations, the DOL also stated that it intended to set the minimum total compensation requirement for another exemption, known as the “highly compensated employee” exemption, to an amount equivalent to the 90th percentile of weekly earnings for full-time salaried workers. Currently, the annual compensation requirement for the highly compensated employee exemption is $100,000. Based on fourth quarter statistics for 2015, the 90th percentile of weekly earnings for full-time, salaried workers would annualize to $134,004. However, the 90th percentile figure actually decreased in the first quarter of 2016 and would annualize to $131,196 using first quarter of 2016 figures.
In anticipation of the final rule, Ogletree Deakins’ Wage and Hour Practice Group has launched the Overtime Solutions Center, an up-to-the-minute educational resource containing breaking news and information as they occur. In addition to our Overtime Solutions Center, the firm’s Wage and Hour blog is frequently updated with significant new developments in the law. Stay tuned.