On June 30, 2015, The U.S. Department of Labor (“DOL”) Wage and Hour Division issued proposed regulations which, if adopted, could significantly increase the number of individuals who are eligible for overtime pay. The DOL’s proposed changes are in response to President Obama’s March 2014 Presidential Memorandum directing the DOL to simplify the overtime regulations and make overtime available to more employees. The DOL estimates that 4.6 million workers who are now classified as exempt under the current regulations will become overtime-eligible under the proposed regulations without some intervening action by their employers.
Background of FLSA Overtime Rules
The FLSA requires that most employees in the United States be paid at least the federal minimum wage for all hour worked and overtime pay at time and one-half the regular rate of pay for all hours worked over 40 in a workweek. The FLSA, however, provides an exemption from both minimum wage and overtime pay for employees employed as bonafide executive, administrative, professional and outside sales employees, and certain computer employees. These are commonly referred to as “white collar” exemptions.
Generally, to qualify for these exemptions, employees must meet certain tests regarding their job duties and be paid on a salary basis at not less than $455 per week. In addition, current DOL regulations contain a special exemption for “highly-compensated” workers who are paid total annual compensation of $100,000 or more.
In 2004, the DOL modified the job duties rules for the white collar exemptions. The proposed regulations, at this point, seek to modify only the salary requirement of the various exemptions.
Highlights of Proposed Rule Changes
The proposed rules would increase the salary threshold from $455 a week (or $23,660 per year) to $970 a week (or $50,440 per year) in 2016. Additionally, highly compensated employees would see the salary threshold rise to $122,148. The DOL’s proposed minimum exempt salary threshold represents the fortieth (40th) percentile of full-time salaried employees’ salaries. Additionally, the DOL proposes to adjust (and likely increase) these minimum salary and compensation levels on an annual basis.
While the proposed rules do not expressly seek to revise the various duties tests necessary to be considered exempt, the DOL nevertheless seeks comments on whether, in light of its compensation proposals, changes to the duties test are necessary. More specifically, the DOL is soliciting comments on the following issues:
- What, if any, changes should be made to the duties tests?
- Should employees be required to spend a minimum amount of time performing work that is their primary duty in order to qualify for exemption? If so, what should that minimum amount be?
- Should the Department look to the State of California’s law (requiring that 50 percent of an employee’s time be spent exclusively on work that is the employee’s primary duty) as a model? Is some other threshold that is less than 50 percent of an employee’s time worked a better indicator of the realities of the workplace today?
- Does the single standard duties test for each exemption category appropriately distinguish between exempt and nonexempt employees? Should the Department reconsider our decision to eliminate the long/short duties tests structure?
- Is the concurrent duties regulation for executive employees (allowing the performance of both exempt and nonexempt duties concurrently) working appropriately or does it need to be modified to avoid sweeping nonexempt employees into the exemption? Alternatively, should there be a limitation on the amount of nonexempt work? To what extent are exempt lower-level executive employees performing nonexempt work?
Next Steps for Employers
While the proposed rules would not be effective until 2016, employers should begin reviewing their current staff to identify any positions that would not meet the proposed increased salary threshold. In anticipation of changes to the duties test, employers should also analyze the amount of time that their lower and min-level managers spend performing non-exempt work. It is possible that certain employees will have to be reclassified as non-exempt in order to comply with the FLSA.
The DOL is providing the public with a 60-day period after the proposed rule is published in Federal Register to comment on it. Comments can be submitted on the DOL’s website.