The United States Department of Labor (the “Department”) has proposed new rules that will require employers to reconsider which employees are subject to federal minimum wage and overtime laws. The proposed new rules will have a dramatic impact on which employees, who may be currently classified as exempt under the administrative, executive or professional exemptions, will continue to be exempt. Under the current rules, employees who earn at least $455.00 per week ($23,660.00 per year) may qualify as exempt if they meet the other requirements of an exemption. Under the Department’s proposed rule, the minimum salary requirement of $455.00 per week will increase to the 40th percentile of weekly earnings for full-time salaried workers or $970.00 per week ($50,440.00 per year), as it is predicted to be in 2016 when the final rule goes into effect. As a result, many currently exempt employees may no longer qualify for an exemption if their salaries do not meet the increased required minimum of $970.00 per week. In fact, according to the Department, the proposed new rule will “extend overtime protections to nearly 5 million white collar workers within the first year of its implementation.”
In addition, the proposed rule increases the total annual compensation requirement for exempt highly compensated employees from $100,000.00 per year to $122,148.00 per year, which is the annualized value of the 90th percentile of weekly earnings of full-time salaried workers.
Finally, the proposed rule establishes a mechanism by which salary and compensation levels will be automatically updated going forward, based either on a fixed percentile of earnings for full-time salaried workers or the Consumer Price Index for urban consumers.
As these proposed rules will significantly impact which employees are properly classified as exempt, employers should consider auditing their exempt positions to ensure that the positions will remain exempt under the new rules.