The federal wage and hour law, called The Fair Labor Standards Act ("FLSA"), is administered by the Department of Labor and governs how and when employees are paid overtime. Changes to the "white collar" exemptions under the FLSA are coming, and fewer employees will qualify for exempt status. Now is a good time to consider changes and review your exempt employees’ status.
On July 6, the Department of Labor (“DOL”) published a long-awaited notice of proposed rulemaking updating the FLSA overtime exemptions. The proposed rules would significantly increase the minimum salary threshold required to qualify for the FLSA’s so-called “white collar” exemptions for executive, administrative, and professional employees. The proposed rules do not contain any changes to the “duties” test, which determines whether salaried workers earning more than the threshold are exempt from the overtime requirements of the FLSA, but DOL has requested and will consider comments on these tests. If adopted, the revised rules would, according to DOL projections, bring nearly 4.7 million currently exempt employees within the scope of overtime protection.
Major Changes — Increased Minimum Salaries for Exempt Employees
DOL’s proposed regulations address concerns that, if left unchanged, the salary level requirement’s effectiveness “as a means of determining exempt status diminishes as the wages of employees entitled to overtime increase and the real value of the salary threshold falls.” Thus, the agency is proposing the following reform measures, among others:
Standard Salary Level Update: The current salary threshold, set in 2004, is $455 per week ($23,660 per year). DOL proposes increasing the standard salary level requirement to an amount equal to the 40th percentile of earnings for full-time salaried workers, which is projected to be $970 per week or $50,440 per year in 2016, more than double the current threshold. This revision is motivated, in part, by the agency’s view that the 2004 threshold failed to adequately account for a relaxing of the “duties” test.
The 60-day comment period runs until Sept. 4, 2015. After that, the DOL will make final revisions, await clearance by the White House Office of Management and Budget, and then issue the final rule. It is expected that the rule will become effective sometime in 2016.
PRACTICE TIP: Employers should begin their planning by internally analyzing exempt positions and identifying options to minimize negative impacts on employee relations, direct payroll costs, indirect administrative costs, and general operations. In other words, start an internal audit and contact counsel before making changes.
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