Bona fide administrative, executive, professional, and computer-related professional employees, as well as outside sales employees, are exempt "white collar" employees under the Fair Labor Standards Act (FLSA). This means they are not covered by the minimum wage, overtime, and certain recordkeeping requirements of the law. The tests for determining exempt status measure the actual duties and responsibilities of the employee, not the job title. The determination also depends on:
- The employee's primary duty;
- The employee's level of discretionary authority; and
- Whether a minimum salary requirement is met.
Rules Provide for Salary and Duties Tests
In 2004, the U.S. Department of Labor (DOL) Wage and Hour Division finalized sweeping changes to the regulations defining who is exempt as a "white collar" employee. The regulations updated salary levels used in determining exempt status for the first time since 1975, while the duties tests received their first overhaul since 1949.
The regulations provide that, in general, any employee earning less than $455 a week ($23,660 a year) is a nonexempt employee entitled to overtime pay, whether he or she is paid on an hourly or salary basis. Employees paid a salary above that level have to meet a duties test in order to be classified as an exempt executive, administrative, or professional employee. Employees paid more than $100,000 a year have to meet only one prong of one of the duties tests to qualify as exempt.
A 2016 final rule that would have raised the overtime threshold to $913 per week was invalidated by a court order.
Proposed Rule Increases Salary Level
On March 7, 2019, the DOL announced a proposed rule that would increase the minimum salary level for the white collar exemption from $455 to $679 per week (or $23,660 per year to $35,308 per year) with an anticipated start date of January 2020. The DOL published the proposed rule in the Federal Register on March 21, with a comment period lasting until May 21.
The proposed rule would also increase the salary requirement for Highly Compensated Employees (HCEs) from $100,000 to $147,414 per year. Employers would also be allowed to use nondiscretionary bonuses and incentive payments (including commissions) that are paid annually or more frequently to satisfy up to 10% of the standard salary level.
The proposed rule would not make changes to the job duties test, nor would it include a provision to automatically adjust the salary threshold. However, the DOL recognized the need to adjust the salary level on a more frequent basis (and suggests doing so every four years through the notice and comment process).
Until the new regulations are finalized, the currently salary threshold remains in effect.