Dep’t of Labor Proposed Overtime Rule Changes Postponed Until Late 2016
In July 2015, the Department of Labor (DOL) proposed several changes to its regulations defining which white collar employees are exempt from the minimum wage and overtime pay requirements of the Fair Labor Standards Act (FLSA). The goal of the proposed changes was to simplify the identification of nonexempt employees, thus making the executive, administrative and professional employee exemption easier for employers and employees to understand and apply. However, after the proposed rules were released, between 247,000 and 290,000 comments flooded the DOL and, as a result, the DOL has announced that the regulations will not be implemented until late 2016.
Under the FLSA, employers are required to pay minimum wages and overtime to employees who work more than 40 hours in a workweek. However, the FLSA exempts certain employees from these requirements. To qualify for overtime exemption, employees must (1) be paid on a salary basis; (2) be paid a minimum salary level; and (3) meet the applicable “job duties” test. No changes to the job duties test have been proposed at this time, but the DOL has left open the possibility to make such changes. There are three common overtime exemptions: executive, administrative and professional, also known as the “white-collar” exemptions.
The first rule change is to the threshold salary amount under the FLSA regulations. Currently, the FLSA regulations guarantee overtime for any qualified administrative, executive and professional employee who is below the salary threshold of $23,600 per year, or $455 per week. The proposed rules would raise the salary threshold to $50,440 per year or about $970 per week. This could expand overtime eligibility to about 4.6 million workers.
Second, the rule change would increase the total annual compensation for an employee to qualify as a “highly compensated employee.” It would increase the annualized salary at the 90th percentile of weekly earnings for full-time salaried employees. This would increase the salary level from $100,000 to $122,148.
The third part of the rule change would be implementing a mechanism that would automatically update the salary level on an annual basis, either by using a fixed percentile of wages or the consumer price index. This is to prevent the new salary level from becoming outdated and requiring an overhaul of the rules, again, in the future.
Even though the rule change will not take place until late 2016, employers should plan to review the employees they currently consider to be exempt and note those positions and persons that are being paid close to the salary threshold. Employees may need to be reclassified as nonexempt because their salary no longer passes the salary level test. Those employees hours will then need to be recorded and any hours over 40 in a workweek will be considered overtime. Employers should also be cognizant of “off-the-clock” time which can consist of emails, making calls, and working from home before or after regular hours. If an exempt employee is reclassified to nonexempt, these hours would need to be kept track of and paid.