On August 30, the Department of Labor (DOL) issued a Notice of Proposed Rulemaking which would affect the classification status of exempt employees. As many employers will remember, during the Obama administration there were significant efforts to raise the minimum baseline wage under which an employee could be considered exempt. During the Trump administration, a new baseline wage was set, but it was considerably lower than what was proposed under Obama.

The current DOL minimum is $684 a week, or approximately $35,568 annualized. The new proposal under the Biden Administration is $1,059 a week, or approximately $55,068 annualized. In general, employers normally aim for a little higher than the minimum to make sure that they meet the baseline and avoid possible reclassification of employees. 

Once the proposed rule is published in the Federal Register, interested parties, including employers and industry groups will have up to 60 days to comment on the rule. 

Fair Labor Standards Act

The Fair Labor Standards Act (FLSA) is a rule of inclusion. Every worker is included under the minimum wage and overtime standards unless they fit within an exemption and because of the exemption don’t qualify for overtime. There are a variety of specific categories under the FLSA for exemption rules, but the most commonly used are administrative, professional, executive, and highly compensated employees. 

In order to fit within an exemption, a person must meet all exemption requirements, which is typically referred to as a duties test. For example, under the professional exemption, you must have completed a course of higher education as well as other specific determinants of being a professional. Doctors, lawyers, and a number of healthcare providers including RNs typically fit within the professional exemption. 

For the executive exemption, there are a number of other requirements, but typically you must supervise two or more employees on a regular and consistent basis as well as exercise independent judgment and discretionary authority. There are also other computer-based exemptions that relate specifically to technology workers and have been the subject of scrutiny for a number of years.

For any of these exemptions to apply, employees must be paid on a salary basis which, among other requirements, limits the number of deductions that can be made from wages for missed time. Additionally, they must be paid the base rate applicable to the exempt category. The August 30 Notice of Proposed Rulemaking affects primarily the executive, administrative, and professional employee requirements.  

The Big Picture

Some industries, such as healthcare and food and beverage, may have a higher proportion of exempt employees paid at lower annualized rates. That said, all employers will once again need to review their exemptions and the base rate to ensure compliance with the new ruling.