Several years ago, our nonprofit learned that the US Department of Labor issued a rule that greatly increased the required minimum salary for our exempt employees, which posed a big financial challenge for our small shop. As a result, we spent an enormous amount of time trying to find ways to cope with this increase without risking our well-being and we devised a plan to implement the changes before the December 1, 2016 deadline, only to learn the courts abandoned the rule.
While we were relieved that we didn’t have to implement the pay raises at that time, we worry that the ruling may be reinstated. Can you provide some clarity around what happened and what to expect in the future—will we have to go through the same kind of fire drill we did several years ago?
The summer and fall of 2016 will be remembered by many US employers as the “Hurry up and Stop” season thanks to that ruling. And you’re not alone in worrying that this policy may boomerang—I’m happy to share a bit of history for context, while also providing insight into where things may head moving forward.
As you know, an employee classified as “exempt” is exempt from most wage and hour laws, including the right to overtime pay. To be properly classified as exempt, federal law and many states’ laws require satisfying a “duties” test, meaning the worker performs certain “exempt” duties of a professional, administrative, or executive nature, essentially meaning they manage themselves. Examples include exercising independent judgment and discretion or hiring and firing, among many others. Exempt employees must also receive a salary, in a legally required minimum amount, regardless of hours worked, or the amount or quality of work performed.
In early 2016, the DOL mandated that employers provide a new minimum salary to exempt employees. It was felt that there were “too many” exempt employees who worked long hours—over 40 a week or eight in a day—who were not properly compensated by the existing salary amount. Their thinking was that a substantial increase in the minimum would result in more employees becoming nonexempt and thus eligible for overtime pay.
The rule was originally scheduled to go into effect on December 1, 2016 and would’ve more than doubled the minimum salary for an exempt employee from $455 to $913 per week (or $23,660 to $47,476 annually). You were certainly not the only nonprofit on a tight budget that was hugely concerned about this!
Then, just days before the deadline, the U.S. District Court for the Eastern District of Texas issued a preliminary injunction with nationwide effect, preventing the enforcement of the rule. The court later confirmed the order, effectively killing the rule.
While the 2016 rule is gone, the DOL is working on crafting a new one and as part of this, they actively engaged in “listening sessions” with stakeholders to figure out the best way forward. The next step will be the issuance of a Notice of Proposed Rulemaking, likely in the spring of 2019. Most experts believe that the new rule will increase the minimum salary to somewhere in the range of $30,000 and $33,000 as of 2020. So more like a 30-35% increase vs. 100%. The thinking is that the new minimum is in line with what most employers already pay, and in general the DOL is still working to set a minimum salary that represents a compromise between fair salaries for exempt employees and a reasonable increase to employers.
So a new rule is most definitely coming and will have to be dealt with. In the meantime, employers will still need to conscientiously remain in compliance with any State laws that set a minimum salary requirement that is greater than the current Federal standard.
Any nonprofit that faces the effects of changes in the minimum exempt salary should monitor the U.S. Department of Labor’s website for updates and developments. And while you’re at it, I encourage you to continue to be cautiously optimistic that the new rule will prove to be less burdensome for your nonprofit!
Toward Equity and Prosperity,
This article does not provide legal representation or legal advice. Nothing provided in this column should be used as a substitute for advice or legal counsel.
Mike Bishop is a graduate of the University of California, Davis with a Bachelor’s degree in Political Science, and a graduate of the University of the Pacific, McGeorge School of Law. He is a member of the State Bar of California and has been admitted to practice in a number of Federal District Courts in both California and Ohio. During his legal career, he worked for 32 years with a Sacramento law firm where he focused on employment litigation in both State and Federal courts. During that time he defended employers in litigation. In 2016, he began his work as an Employment Risk Manger for the Nonprofits Insurance Alliance, assisting nonprofits in evaluating employment risks. He lives in Lakewood, Ohio.
Hypothetically, if the wage increase did go into effect, how would, or would I need to increase all exempt employee salaries across the board? I ask this because most of my non-profit employees all receive a salary above the minimum exempt requirements, however, would increasing salaries (e.g., 30-35%) across the board be appropriate? Is it fair to only increase the lower paid employees to the new minimum?
Mike Bishop says
Every exempt employee must receive the minimum salary amount required by each jurisdiction. When that requirement changes, all of your exempt employees’ salary must be changed to conform to the new requirement. Paying more than the minimum is your decision.
Pamela Davis says
Jude, I couldn’t agree with you more. I don’t have any answer to this huge problem, but I know that nonprofit work is generally not compensated as it should be nor are nonprofit employees appreciated for the heroic sacrifices they make because of their commitment to mission. I would love to hear any and all ideas about how the nonprofit sector can actually become an advocate for fair pay for honest work. There is such an imbalance in our country between the compensation of labor and capital. And, while I think we could and should join with all workers to raise the compensation bar overall for those who do the work in this country, there is certainly no excuse for paying less for the labor of those who are growing our future generations than we pay for those who build cars, invest money, work retail, you name it. This is a huge, systemic problem that needs collective action. Are there smarter people than I am out there with some good ideas about how to get this boulder rolling?
Jude Kaye says
While I respect how difficult it is for a small struggling nonprofit to pay a living wage, I have been and continue to be constantly appalled that organizations — especially social service organizations dedicated to social and economic and racial justice and caring for those in need — feel that they can only do so by exploiting their own dedicated and caring workers. I recognize that needs are great and charitable and government monies hard to come by, but I worry about making it all work by taking advantage of their staff. Regardless of what federal mandates are, there must continue to be dialogue on how to pay a living wage and not expect staff to continue to work 50 or 70 or more hours a week