DOL Issues Proposed Changes to Overtime Exemption Rules
On Tuesday, June 30, the Department of Labor (DOL) released the long anticipated proposed rule updating its regulations implementing the Fair Labor Standards Act’s Executive, Administrative and Professional exemptions (Proposed Rule). Many anticipated that the Proposed Rule would revise two existing requirements of the so-called white collar exemptions: the "salary basis" test and the "primary duties" test. The proposal, however, addresses only the former.
Under current rules, workers who earn a fixed salary of at least $455 per week ($23,660 annually) and perform certain duties can qualify for the Executive, Administrative, Professional or Computer exemptions from overtime pay. Under the Proposed Rule, however, the salary threshold for such employees would increase to $970 per week ($50,440 annually) in 2016.
Additionally, under the Proposed Rule, the DOL also proposes to:
- Increase the total annual compensation requirement needed to exempt highly compensated employees to the annualized value of the 90th percentile of weekly earnings of full-time salaried workers (i.e., from $100,000 to $122,148); and
- Establish a mechanism for automatically updating the salary and compensation levels going forward to ensure that they will continue to provide a useful and effective test for exemption.
The Proposed Rule is subject to the federal rulemaking process, which means a considerable amount of time could pass before any final rule goes in to effect. While this process unfolds, employers should consider taking the following steps:
- Examine payroll records to identify which currently exempt employees would could lose that status if the proposed salary thresholds are adopted;
- For employees who may be adversely affected if the Proposed Rule is adopted, consider whether to increase employees’ salaries to preserve their exempt status and/or reclassify the employees into two separate groups, one exempt and one not exempt; and
- Depending on the results of the foregoing analyses, consider whether to submit comments to the DOL regarding the Proposed Rule. Employers have until September 4, 2015 to submit such comments.