Potential New Salary Minimum for Exempt Employees

money on deskThe test for classifying employees as exempt from the Fair Labor Standards Act’s overtime requirements may be briefly summarized as follows:  the employee must be paid on a salary basis (i.e., receive the same base salary amount every workweek regardless of the number of hours worked), and the employee must perform duties which satisfy the regulatory requirements for exemption as an executive, professional or administrative employee.  But there is another element to the exemption test, namely the minimum salary threshold.

Until about ten years ago, the minimum salary threshold was a non-factor in assessing exempt status.  A minimum salary of $155 per week was established by Department of Labor regulation in 1975, and was unchanged for the rest of the century.  By 1997, the federal minimum wage was $5.15 per hour, so  that anyone who was being legally paid for a 40-hour week would qualify for the minimum salary for exemption.

A major revision and overhaul of the FLSA regulations in 2004 included an increase in the salary threshold to a more realistic $455 per week ($23,660 per year).  In response to a directive from President Obama, for the past year the Department of Labor has been considering a number of changes to the regulations governing the overtime exemptions, including a further increase in the minimum salary threshold, and proposed rule changes are expected soon. On January 29, a group of twenty-six Democratic senators co-signed a letter to the President, recommending that the salary threshold be doubled, to at least $56,680 per year, and indexed to inflation.  Although the proposed new rule is scheduled for publication by the DOL this month, it is not known whether the DOL will meet that schedule.

Traditionally, hourly-paid wage earners give value to their employers more or less in direct proportion to the time that they spend on the job; productivity is measured by hours worked.  Productivity in the exempt categories is less linear, with creativity, exercise of discretion, and independent judgment as measures of value.  The proposal for a significant increase in the annual salary threshold may be viewed largely as a means of raising wages by expanding the number of workers who qualify for overtime pay, regardless of whether their duties are otherwise “exempt” in nature.  However, since $155 in 1975 dollars would be worth $682 today, there is a legitimate argument for some increase in the salary threshold to maintain consistency in the regulatory scheme.