In July 2015, the U.S. Department of Labor (USDOL) published proposed regulations which would alter whether and how you classify your workers as exempt. Employers continue to sit on pins and needles awaiting finalization of these proposed new rules. Here is the what, why, and when of the anticipated regulations.
What Are The Proposed Regulations?
Currently, the proposed regulations would define how you determine who is “exempt” from overtime pay under the federal Fair Labor Standards Act's Section 13(a)(1) executive, administrative, professional, outside-sales, and derivative exemption categories.
In order to qualify as exempt from overtime pay, employees must work in positions that meet specific duties tests, and in most cases, also meet minimum compensation tests. The good news is that the proposed regulations do not currently address the specific duties tests, so it does not appear as if you have to review your positions again to see whether they qualify.
The bad news is that there would be significant changes to the compensation tests if these regulations are adopted. USDOL intends to essentially double the minimum salary threshold, raising it from $455 to $921 per week. The new figure would annualize to $47,892.
And even worse, for the first time in the 75-plus-year history of these rules, the USDOL is proposing that it would release an “updated salary rate” on an annual basis. The agency's accompanying remarks suggest that this might result in a $970 threshold (annualizing to $50,440) as early as 2016.
Therefore, if you are viewing this proposal from the standpoint of longer-range planning and budgeting, you would be wise to project for now that the minimum salary will move up steadily. We predict that it will head toward an annualized level in the mid-$50,000s in the not-too-distant future.
Why Are There New Regulations At All?
It appears that the government wants to sharply reduce the number of exempt workers in the country. Also, in line with current trends, it appears the USDOL wants to give a lot of workers a big raise.
When Will The New Regulations Go Into Effect?
That is the million-dollar question. The notice and comment period closed in early September 2015, despite repeated requests by the business community for a longer time period. This led many to believe that implementation of the new rules would be fast-tracked. However, that has not turned out to be the case.
The USDOL’s most recent semi-annual regulatory agenda released in November 2015 shows a July 2016 “Final Rule” timeframe for the revised regulations. If that’s the case, there will be an August or September effective date (assuming a 60-day implementation period). However, a high-ranking government official made waves soon before that when she publicly stated the revisions would not be forthcoming until “late 2016,” and perhaps not even until after the presidential election. But then again, the Labor Secretary predicted in mid-December that the rules would be finalized by spring 2016.
Meanwhile, a coalition of employer associations and advocacy groups is making a strong push for delayed implementation, or even a complete revision. While such developments are unlikely to occur, it is not uncommon for USDOL to fail to meet its target dates. The bottom line is that the exact release date remains uncertain.
What Should You Do?
While we wait for the other shoe to drop, we recommend you take the following steps to get ready:
- evaluate immediately what the proposed changes would mean for your organization and employees;
- determine whether and how to bolster the FLSA exemption status of those you treat as exempt from overtime;
- decide what other FLSA exemptions might apply to one or more of your employees; and
- select alternative FLSA-compliant pay plans that would serve your needs if you decide to convert one or more employees to non-exempt status.