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Employment Law

Whatever Happened to the New Exempt Employee Salary Threshold?

In short, the new exempt employee salary threshold is gone for now. First, a little background.

The Fair Labor Standards Act (FLSA) and Department of Labor Regulations Exempt Employees

A federal law called the Fair Labor Standards Act (FLSA) imposes a minimum hourly wage and a requirement that employers pay their employees one and a half times the employee’s regular rate when an employee works overtime (usually over 40 hours in a workweek). However, certain employees are exempt from these FLSA requirements (these employees are commonly referred to as “exempt” employees).

The FLSA states that “any employee employed in a bonafide executive, administrative, or professional capacity is exempt” from the above-mentioned FLSA requirements. The FLSA delegates to the U.S. Department of Labor (DOL) the power to define these terms through its regulations. The DOL’s regulations require an employee to be paid a salary (the “salary-basis test”), meet requirements related to a minimum salary level (the “salary-level test”), and have certain executive, administrative, or professional job functions (the “duties test”) in order to be considered exempt.

The New Exempt Employee Salary Threshold

In 2014, the Obama administration engaged in efforts to modernize the DOL’s regulations. As part of that effort, the DOL published a “Final Rule” that raised the minimum salary required for an employee to meet the salary-level test for exemption from the FLSA from $455 per week ($23,660 per year) to $913 per week ($47,476 per year). The Final Rule was to take effect on December 1, 2016.

Challenges to the New Salary Threshold

Before the rule went into effect, 20 states and 55 businesses filed lawsuits challenging the constitutionality of the rule and seeking emergency injunctive relief to prevent the rule from going into effect. The cases were consolidated in the U.S. District Court for the Eastern District of Texas and that court issued a preliminary injunction, preventing the rule from going into effect nationwide while the Court addressed the merits of the plaintiffs’ substantive claims.

In August, the Texas Court ruled in favor of the states and businesses that challenged the rule by granting summary judgment (you can read the order here), effectively ensuring that the new rule will not go into effect. The Court ruled that the DOL exceeded the rulemaking authority delegated to it by the FLSA. The Court reasoned that doubling the existing salary-level test threshold improperly overshadowed the duties test, which was equally, if not more, important to determining whether an employee met the requirements to be “exempt.”

What Happens Now?

The Department of Justice will likely issue a new rule, setting a new exempt employee salary threshold. The Justice Department has appealed the Texas Court’s order in order to preserve the Department of Labor’s authority to issue rules regarding the exempt employee salary threshold. And, at his confirmation hearing, Department of Labor Secretary Alexander Acosta stated that he believed the appropriate salary threshold is around $33,000. So stay tuned!

Employment law

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