The U.S. Department of Labor (DOL) has published its long-anticipated proposed changes to the Fair Labor Standards Act's (FLSA) white-collar exemptions (e.g., professional, administrative, executive, computer professionals and outside sales). 80 FR 38515 (July 6, 2015).
While originally anticipated to encompass more sweeping measures, the Notice of Proposed Rulemaking (NPRM) focuses only on specific proposals with respect to the minimum guaranteed salary. Citing President Obama's March 13, 2014, Presidential Memorandum to update and simplify the regulations governing the white-collar exemptions—published in the Federal Register on April 3, 2014—the DOL emphasized its belief that the salary level test is "the best single test" of exempt status. In so doing, the NPRM encompasses the following proposals.
- The minimum guaranteed salary level will be increased from $455 per week to the 40th percentile of weekly earnings for full-time salaried workers (currently $921 per week, or $47,892 annually);
- The "highly compensated employee" exemption, which enables employers to meet a simpler "duties" test as long as a higher minimum guaranteed salary is met, will be increased from $100,000 to the annualized value of the 90th percentile of weekly earnings of full-time salaried workers ($122,148 annually); and
- The DOL will establish a mechanism for automatically updating the minimum guaranteed salary calculations on a going-forward basis. If adopted, using the standard of the 40th percentile of weekly earnings for full-time salaried workers (based on certain other assumptions) will result in the minimum guaranteed salary increasing to approximately $970 a week ($50,440 a year) in 2016.
Although the NPRM does not make any specific changes with respect to the required "duties" needed to maintain the white-collar exemptions, the DOL invites public comment on the extent to which the "duties" test should be adjusted, particularly in light of the proposed changes to the minimum guaranteed salary. Specifically, the DOL describes the following issues on which it seeks public input.
- What, if any, changes should be made to the duties tests?
- Should employees be required to spend a minimum amount of time performing work that is their primary duty in order to qualify for exemption? If so, what should that minimum amount be?
- Should the DOL look to the State of California's law (requiring that more than 50 percent of an employee's time is spent exclusively on work that is the employee's primary duty) as a model? Is some other threshold that is less than 50 percent of an employee's time worked a better indicator of the realities of the workplace today?
- Does the single standard duties test for each exemption category appropriately distinguish between exempt and nonexempt employees? Should the DOL reconsider its decision to eliminate the long/short duties tests structure?
- Is the concurrent duties regulation for executive employees (allowing the performance of both exempt and nonexempt duties concurrently) working appropriately or does it need to be modified to avoid sweeping nonexempt employees into the exemption? Alternatively, should there be a limitation on the amount of nonexempt work? To what extent are exempt lower-level executive employees performing nonexempt work?
The DOL also noted that it is considering whether to include additional examples of specific occupations to provide further guidance in administering the exemptions, particularly within the computer-related fields. In addition, the DOL stated that it is considering whether to allow nondiscretionary bonuses to satisfy some portion of the standard salary requirement.
The DOL's public comment period runs through September 4, 2015.
The increase in the minimum guaranteed salary will likely have an immediate and significant impact. The DOL recognizes that employers required to reclassify positions to nonexempt status may demand fewer hours of employees in those positions in order to lessen the potential overtime obligation. The DOL perceives this reality as a potential benefit to employees seeking a better work-life balance. Employers, conversely, will likely struggle to balance department work-loads within budgetary constraints.
While changes will be made to the proposed regulations on the minimum guaranteed salary before they are finalized, it is unlikely that any further changes will be substantial. Therefore, the potential impact on employers can be anticipated. However, given its open-ended request for public comment, it is conceivable that the DOL will seek to include changes to the "duties" tests within the final regulations. The impact of such changes would likely be far-reaching.