The DOL discusses for many pages why it substantially
increased the minimum salary. In short,
it contends that the 2004 FLSA regulations combined the lower salary level for
the traditional long duties test with short duties test (which typically
required a higher minimum salary level) to create the standard duties test and,
therefore, short-changed many exempt employees.
It also criticizes how the 2004 salary level was set differently than in
past years and that it relied on regional instead of national data. The current proposal also chose a salary level
that made the minimum wage approximately same ratio to the minimum exempt
salary as it had been in 1958 and 1970.
The DOL notes that many
employers prefer to pay their salaried employees a significant portion of their
compensation through non-discretionary bonuses and incentive payments to give
the employees a sense of ownership in their work and to improve their
performance. Historically, the FLSA
regulations have not considered these payments as part of the salary basis test
(except for highly compensated employees).
However, the DOL is considering including these bonus and incentive
payments into the new salary basis test, so that employers do not entirely
eliminate these pay-for-performance systems.
However, if it were to adopt such revisions, the DOL would only permit 10% of such bonuses to be considered
as part of the mandated $921 weekly salary amount needed to meet the overtime exemption
and would require that such bonuses be paid out weekly or monthly, instead of
merely annually or quarterly as most of them currently are. (This, of course, reflects that most of the
bureaucrats making the rules have been paid by the government with steady tax
income so long that they have no understanding of how the real world works in
the private sector). The DOL also would
not permit “catch up payments” as are currently permitted for highly
compensated exempt employees.
Likewise, the DOL seeks
comments about whether to include commission payments in the salary level test
on the grounds that they are similar to nondiscretionary bonuses.
The proposed new regulation
still would not consider discretionary bonuses as part of the salary level test
and would still exclude room and board, etc. from the calculation. It would similarly exclude “payments for
medical, disability, or life insurance, or contributions to retirement plans or
other fringe benefits.” It also
maintains separate tests for the movie industry and American Samoa. In addition, certain professions remain outside the
salary basis tests, including lawyers, judges, physicians and academic
administrative personnel.
All in all, the only surprise
in the proposed regulations was that the DOL did not modify the 2004 standard duties
test for exempt positions. The proposed
minimum salary rate has been whispered in employment law sectors and the news media for many
months. However, employers should remain
vigilant in case the DOL changes its position about the duties test and whether
and how it will permit incorporation of bonuses, commissions and incentive
payments into the salary basis test.
NOTICE: This summary is designed merely to inform and alert you
of recent legal developments. It does not constitute legal advice and does not
apply to any particular situation because different facts could lead to
different results. Information here can be changed or amended without
notice. Readers should not act upon this information without legal advice. If
you have any questions about anything you have read, you should consult with or
retain an employment attorney.
