On July 6, 2015, the United States Department of Labor (“DOL”) published proposed regulations that would more than double the minimum salary requirements for employees to qualify for the executive, administrative, and professional (“white collar”) exemptions to the minimum wage and overtime pay requirements of the federal Fair Labor Standards Act (“FLSA”). The proposed regulations, the first major change to the federal overtime regulations since 2004, would affect all employers and could have a substantial impact on employers’ labor expenses in 2016 and beyond.
Under the “white collar” exemptions, employers may classify as “exempt” certain employees who earn a threshold amount (“salary threshold”) on a fixed basis and whose job duties meet specific regulatory requirements (“duties tests”). The FLSA does not require employers to pay these exempt employees overtime compensation. In contrast, the FLSA requires employers to pay “non-exempt” employees for all time worked, with a premium rate of one and one-half times their regular rate of pay for all hours worked over 40 hours per week. To comply, employers must track and record the hours non-exempt employees work.
The 2004 regulations currently require an exempt employee be paid a salary of at least $455 per week (or $23,660 per year). The new proposed regulations would raise the minimum salary threshold to approximately $970 per week (or $50,440 per year) for 2016. The new minimum is based on an estimate of the 40th percentile of weekly earnings of full-time salaried workers in 2016 and will increase annually to match the 40th percentile mark. Similarly, the minimum compensation for the highly compensated employee exemption would increase from $100,000 per year to $122,148 per year, which is tied to the 90th percentile of earnings of full-time salaried workers and will also be updated annually. The DOL will issue notice of any increase at least 60 days in advance.
Although the proposed regulations do not modify the duties tests required to qualify for the white collar exemptions, as many had expected, the DOL requested comments on what changes should be made to the analysis of an employee’s primary duties, including:
- Whether a minimum amount of time spent on a primary duty should be required for the exemption, in particular whether to adopt California’s rule requiring 50% of the employee’s time be spent on the primary duty;
- Whether the single standard duties test works appropriately to distinguish between exempt and non-exempt employees; and
- Whether allowing exempt executive employees to perform exempt and non-exempt duties concurrently is appropriate and whether there should be a limit on the amount of non-exempt work permitted.
The DOL also asked the public for input regarding any additional specific occupations that should be listed as examples in the regulations and whether non-discretionary bonuses should be included in determining whether the salary threshold is met. All comments are due by September 4, 2015. Please contact us if you have any comments you would like to present to the DOL regarding the proposed regulations.
The DOL anticipates issuing the final regulations in 2016. Employers should begin reviewing their payroll records to determine which employees would no longer qualify as exempt from overtime due to the new salary minimums and plan and prepare for the increased payroll costs and the additional recordkeeping requirements for employees who no longer would be exempt. Additionally, employers should consider auditing their current classifications and payment processes to ensure compliance with the existing regulations for exemption from minimum wage and overtime pay requirements.
Potomac Law Group attorneys are available to assist in these efforts and to consult generally on questions relating to employment law and Human Resources management.
This Bulletin is not intended as legal advice. Readers should seek professional legal counseling before acting on the information it contains.