On June 30, 2015, the Department of Labor (DOL) issued proposed rules that will significantly increase the minimum salary threshold required for an employee to be classified as exempt for purposes of overtime pay under federal law. It is expected that nearly 5 million additional workers will become eligible for overtime pay within the first year of the rule’s implementation.
Under the Fair Labor Standards Act (FLSA), employers are not required to pay overtime to certain “exempt” categories of employees. One such category is “white collar” employees such as executive, administrative, professional, outside sales, and computer employees. To qualify for one of the so-called “white collar” exemptions, an employee must meet a minimum salary requirement of $455 per week (or $23,660 per year) and perform certain job duties. The proposed rules increase the salary threshold amount for “white collar” employees to $970 per week (or $50,440 per year) starting in 2016. In addition, the DOL has proposed that the salary level should increase every year automatically after 2016 based on nationwide earnings data. The precise method for calculating this annual salary increase has not yet been determined.
The proposed rules also would alter the requirements for “highly compensated employees”, who are also exempt from overtime. The salary threshold for highly compensated employees will be increased from $100,000 to $122,148, annually.
Notably, the DOL did not propose rules revising the duties tests applicable to the white collar exemptions. Instead, the DOL has asked for public comment on whether the current duties tests are working as intended to determine whether an employee is truly a white collar employee eligible for overtime-exempt status.
Interested parties will have the opportunity to submit comments on the proposed rules before the DOL issues final regulations, which are likely to go into effect in 2016. Although the final regulations have not taken effect yet, employers should assess employees’ salaries to determine how the rules will affect their operating costs when implemented. Reclassification of employees or updated policies on performing overtime work may be appropriate. Now is the time to develop a reclassification plan that ensures proper documentation and recordkeeping, as well as effective communication of the changes to employees.