Navigating changes to the salary threshold for 'exempt' employees.

• Author: Saade, Renea
• Position: Legal Speak

For more than sixty years, the US Department of Labor has held that certain executive, administrative, and professional employees, and other highly compensated individuals performing non-manual labor are exempt from the minimum wage and overtime pay protections under the federal Fair Labor Standards Act (FLSA). Most states, including Alaska, exempt similar workers from local minimum wage and overtime laws as well. Generally, in order for these exemptions to apply, employers have been required to establish that (1) an employee is paid a predetermined, fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed; (2) the salary paid meets a minimum specific amount; and (3) the employee's job duties primarily involve executive, administrative, professional, or other duties as defined by regulations.

Federal Threshold Doubles

Since 2004, the FLSA salary threshold under the test above has been $455 per week ($23,660 per year). Several states, including Alaska, have higher minimum thresholds. Currently, to qualify as "exempt" from local minimum and overtime wage laws under Alaska Statute 23.05.055(b), an employee's weekly salary must be at least twice the amount a person would make working forty hours at minimum wage. Given the current state minimum wage rate of $9.75 per hour (effective as of January 1, 2016), this translates to a minimum of $780 per week ($40,560 per year).

In June 2015, the US Department of Labor proposed a new rule to update the criteria for FLSA exemptions. Industry experts and commentators predicted that by mid-2016, the FLSA salary threshold would be increased to more than $50,000 per year. There was also speculation that the federal minimum wage ($7.75 per hour) would be increased. Since the Alaska minimum wage is based on the federal rate (the law sets Alaska's 2017 minimum hourly wage at no less than $1.00 more than the federal rate), folks have been waiting with anticipation to see what changes would be adopted.

The Department of Labor issued its final rule in May 2016 and set the new FLSA salary threshold at $913 per week ($47,476 per year) effective December 1, 2016. Although this final figure is slightly lower than expected, it is still more than twice the current federal threshold.

Under the final rule, the FLSA salary threshold will be adjusted every three years and set at a rate that represents the 40th percentile of full-time salaried workers in the lowest-wage...