Employment Law Advisor

Significant Amendments To The Overtime Regulations Proposed By The DOL Will Result In Many More Workers Becoming Entitled To Overtime

July 1, 2015

Do you have any exempt employees who earn less than $50,440 per year? If so, then pursuant to the U.S. Department of Labor (DOL)’s proposed rule, those employees will need to be reclassified as non-exempt and paid overtime (time and a half) for all hours worked over 40 in a week, when and if such rule goes into effect.

The DOL’s proposal to amend 29 CFR Part 541, the “white collar” exemption for executive, administrative, and professional employees, has been a long time coming.  But many employers may be surprised at the proposal’s significant increase in the salary level required for an employee to remain qualified for the white collar exemptions.

The federal Fair Labor Standards Act (“FLSA”) exemptions are familiar to most employers.  Under the FLSA, employees must be paid the minimum amount required by the statute on a salary basis, and the employee’s job duties must primarily involve executive, administrative, or professional duties.  The proposed amendment addresses both portions of the test, but only proposes specific changes to the salary basis test.

Salary Basis

As noted above, the proposed rule would raise the salary required for the white collar exemptions to $970 per week, or $50,440 per year, indexed to the 40th percentile of weekly earnings for full-time salaried workers (currently the required salary is $455 per week ($23,660 annually); it was last updated in 2004).    The DOL also proposes raising to $122,148 the amount required to qualify for the highly compensated employee exemption (from $100,000), indexed to the annualized value of the 90th percentile of weekly earnings of full-time salaried workers.

While this proposed salary increase may not be adopted at this level in the final regulation, it is clear that there will be a significant increase.  Among other things, such a high salary requirement will make it more difficult to keep part-time exempt positions in place, as those positions will still need to meet the $970 per week salary minimum.

Duties Test

At this time the DOL has not proposed specific changes to the regulations dealing with job duties.  However, it has stated that it is considering whether revisions to the duties tests are necessary in order to ensure that these tests fully reflect the purpose of the exemption.  Indeed, the DOL has asked for comments on a number of specific questions, including (i) whether changes should be made to the duties tests,  (ii) whether employees should be required to spend a minimum amount of time performing work that is their primary duty in order to qualify for exemption and, if so, what should that minimum amount be, (iii) whether the DOL should look to the State of California’s law (requiring that 50% of an employee’s time be spent exclusively on work that is the employee’s primary duty) as a model, (iv) whether the DOL should return to the alternative long vs. short duties tests, and (v) whether the current concurrent duties test which allows executive employees to perform both exempt and nonexempt duties concurrently is appropriate.

While the outcome of this further examination of the duties test is not yet known, it is clear from the questions posed by the DOL that there may be significant changes on the horizon.  In particular, employers who have managers who concurrently perform exempt and non-exempt duties (such as many managers in retail and hospitality jobs) may need to reclassify these positions as non-exempt, or else change the duties of the positions to fit the new requirements of the exemption.

Timeline

The Notice of Proposed Rulemaking (NPRM) was published on July 6, 2015 in the Federal Register (80 FR 38515) and invited interested parties to submit written comments on the proposed rule at www.regulations.gov on or before September 4, 2015.  Although the regulations will likely not go into effect until 2016, it is not too early to start thinking about the impact the new rule will have on your organization’s budget and operations, especially if you have non-exempt positions with an annual salary rate of less than $50,440. 

If you would like more information on how the proposed regulations will affect your current employee classifications, please contact Scott Connolly.

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