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The Department of Labor’s Proposed Overtime Changes - August 2015

August 04, 2015

by Jeffrey D. Wilson

Many employers rightfully view the overtime provisions of the Fair Labor Standards Act (“FLSA”) as a minefield, and it is one that may soon be even more dangerous. The FLSA requires employers to pay their employees one-and-a-half times their regular pay rate for any hours worked in excess of 40 a week. However, Sections 13(a)(1) and (17) provide exceptions for bona fide executive, administrative, professional, outside sales, and computer employees. Whether an employee qualifies for an exemption depends on a number of factors, including how much money they make and the specifics of the employee’s job duties (but, contrary to common belief, not the employee’s job title). The exemptions have not been revised since 2004, when the Bush Administration raised the “minimum qualifying salary level” from $155 a week, where it had been since 1977, to $455 a week (or $23,660 a year), and changed some of the exemption requirements.

In March 2014, President Obama asked the Department of Labor (“DOL”) to issue revisions tightening the “white collar” exemptions in an effort to extend overtime coverage to millions of additional Americans. Earlier this month, the Wage and Hour division of the DOL complied by issuing a Notice of Proposed Rule Making titled "Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees."  

The proposed rule more than doubles the minimum qualifying salary for the “white collar” exemption from $455 a week to an amount “equal to the 40th percentile of earnings for full-time salaried workers.” That would place the minimum salary at an estimated $970 a week by next year (or just over $50,000 a year). By tying the minimum qualifying salary to earnings, the DOL is trying to avoid going years without raising the minimum. The rule would also increase the amount required to qualify for the “highly compensated employee” exemption from the current $100,000 a year (and the requirement that the employee perform at least one exempt duty) to the “annualized value of the 90th percentile of weekly wages of all full-time salaried employees,” which in 2013 was $122,148 a year (the DOL has indicted that it is also considering whether to tie the future increases to the Consumer Price Index instead of wage percentiles). According to the DOL, an additional 4.6 million Americans (and 36,000 “highly compensated employees”) will become eligible for overtime should the proposed rule be adopted.

To the surprise of many observers, the proposed rule does not seek specific changes to the “primary duties” test, which is used to determine who is exempt as an executive employee. Instead, the DOL “punted” on the issue by seeking comments on whether the current duties test is adequately screening out non-white-collar employees and whether additional changes should be made to the duties test. If this “comment seeking” seems a bit nebulous, that is because it is. In theory, the DOL’s final rule could make a number of changes to the duties test – including mandating what percentage of work time employees must spend on their “primary duties” in order to be considered exempt – without giving employers the chance to review or comment on the eventual changes. The DOL has also requested comments on whether incentive pay and nondiscretionary bonuses should be considered when determining an employee’s salary level. For additional details, you can review the DOL’s Fact SheetRegulations.gov before the comment period concludes.

Employers should also begin thinking about how these proposed changes might affect their own workforce. News coverage of the changes will undoubtedly increase as the implementation deadline approaches, and some employees may begin questioning their exemption status. If you have not done a recent employee audit, now might be the time to begin performing one or to at least being thinking about changes you may need to make in order to maintain or adjust your current employee exemptions.

As always, the attorneys at Pender & Coward, PC are available to answer your questions and assist employers in remaining compliant with the law.