Proposed Salary Threshold Changes for FLSA Exemption Status

Written by Rebecca Tipton, SHRM-SCP

BMSS HR Advisory
Putting the “Resource” in Human Resource Consulting 

As those familiar with the Fair Labor Standards Act will know, designating an employee as FLSA-exempt is not as simple as just paying someone a salary or just deciding that an employee should not qualify for overtime. Instead, there are very specific guidelines to follow that vary depending on the type of position the employee holds. For almost every type of exemption; such as Administrative, Executive, Professional, or Outside Sales; there are essentially three tests to pass. The first test is whether the employee’s job duties meet the “duties test” of the selected exemption category. The second test is whether the employee is paid on a salary basis, which basically means that there is a guaranteed amount that the employee is paid on a periodic basis, such as weekly, monthly, or annually. Finally, the third test is whether that guaranteed amount meets or exceeds the salary threshold, which (for most categories) is currently $35,568 annually or $684 weekly. This third test is what the federal Department of Labor has recently proposed to increase to $55,068 annually or $1,059 weekly, which means that employers should make plans and preparations in case that change does go into effect.

Of course, many may remember that this is not the first time in recent history that a change to the FLSA salary threshold has been proposed. The most recent change was under the Trump administration when the threshold was proposed to change to the current amount from the previous threshold of $23,660 annually. The proposed change was accepted and then made effective in 2019. However, if we remember, even before that, a change was also proposed under the Obama administration, and while it was finalized, it was later challenged and defeated in a Texas federal court in what many would call the 11^th hour. By the point that it had been overturned, many companies had already scrambled to make changes effective to either keep their employees classified as exempt by increasing their salaries to meet the new threshold or to re-classify affected employees as non-exempt, most commonly by recategorizing their compensation as hourly as opposed to salary. Therefore, when the news broke that the salary threshold changes were no longer effective, there were a few who felt they moved too soon and that their efforts were wasted.

You may, rightfully, ask, “What is the right move then; wait and hope that it gets overturned last minute only to be left scrambling and in chaos to get into compliance, or make preparations now only to worry that all of the work was for nothing?” No one likes completing a large project and feeling like their time has been wasted, but there is, fortunately, a happy medium to both options. What I would personally recommend is to review all exempt employees’ salaries now, making sure to identify those who would fall under the new salary threshold. After you identify which employees would be affected by the change, review them with your stakeholders, making sure to note which positions would be better served by being recategorized as hourly versus those for whom it would make more sense to simply provide a pay increase to keep them exempt. There are varying reasons for both, which are probably best decided upon by your leadership team, but they include how far the current salary is from the proposed threshold or whether the assigned duties require the employee to work odd and frequent hours that hourly compensation and overtime premiums would prove to be too burdensome and costly to maintain. Once you have made your decisions, the next best move is to wait and see what happens. If the change is made, then the good news is you have already completed all of the preparations to know exactly what your next move will be, and you can communicate with your employees and process the changes. If the proposed change falls apart again, then the good news is that, while you have put in the work to be prepared, at least you have not actually made all of the changes yet, which would be extremely hard to rescind after telling an employee that he/she is receiving a pay raise.

Such changes can be difficult to process, especially with recent history showing us that no proposed change is guaranteed to occur, so it really is best to be prepared with the knowledge and plans on how to proceed once the final word is handed down. If you or your team ever need help navigating the Fair Labor Standards Act or any other personnel issues, contact our BMSS HR Advisory team at (256) 964-9788 or visit our website at bmss.com.