After missing several self-imposed deadlines to release new FLSA wage and hour regulations called for by President Obama, the DOL released proposed rules on Monday that will dramatically increase the number of employees eligible for overtime payments. As expected, the proposed changes focus primarily on the salary threshold for the “white-collar” exemptions to the overtime provisions of the FLSA.
The proposed changes will nearly double the salary threshold for overtime exemptions. Under the current law, most exemptions require an employee to be paid at least a salary of $455 per week or $23,660 annually in order to be exempt from the overtime provisions of the FLSA. The new proposal will essentially double the required salary. The DOL anticipates these changes will increase the number of workers eligible for overtime by 5 million during the first year of implementation.
Under the newly proposed rules, to qualify for most exemptions, an employee must be paid a salary of $921 per week or $47,900 annually. Additionally, the new salary requirement will be automatically adjusted from year to year so that it remains at a number within the 40th percentile of weekly earning for full-time salaried workers. Accordingly, in 2016, when the rule is likely to go into effect, the new salary threshold would increase to $970 per week or $50,440 annually.
Additionally, the salary requirement for the exemption for highly compensated employees will increase. Currently, to qualify for this exemption an employee must be paid a salary of at least $100,000 annually. Under the new regulations, an employee must receive a salary within the 90th percentile of weekly earning of full-time employees, currently $122,148 annually, to qualify for this exemption.
The proposed regulations do not contain any significant changes to the duties tests of the white-collar exemptions. Rather, the DOL asks for parties to comment on the current requirements.
Employers should carefully evaluate their currently exempt employees to determine which, if any, will be impacted by the new regulations. If an exempt employee does not meet the anticipated salary threshold, they should consider whether the anticipated financial impact will be greater by raising the salary of the employee to meet the new exempt standard or by allowing the employee to be eligible for overtime and more closely managing worked hours.
The proposed rule will not be effective until after the comment period. Interested employers can make their feelings known regarding the impact of the proposed changes on their business by providing comments on the DOL’s proposed rule website.