At the close of the second calendar quarter, the Department of Labor (“DOL”) unveiled its highly anticipated proposed rule regarding changes to the Fair Labor Standards Act’s (“FLSA”) overtime pay protections—announcing that under the proposed rule, approximately five million salaried exempt employees will no longer be covered under one of the FLSA’s “white collar” exemptions and will soon be entitled to overtime.
Under the current rule, individuals must perform certain job functions that qualify for exempt status (“duties test”), but must also earn at least $455/week, or $23,660 annually (“salary test”). The DOL’s proposal is to raise the salary threshold, more than doubling it, to approximately $50,000 annually. This proposed figure sets the salary test at the 40th percentile of weekly earnings for full-time salaried workers—mirroring the level when the salary test was first established.
The proposed rule also seeks to raise the highly compensated exemption from $100,000 to more than $120,000, tying it to the 90th percentile of earnings for full-time salaried employees. Moreover, for the first time ever, the DOL is recommending indexing the salary test for all exemptions annually based on percentiles of earnings or changes in inflation. This significant change would require employers to review their classification of exempt employees annually to ensure compliance with the salary test.
While the proposed rule did not specifically address the “duties test,” it does solicit suggestions and comments on the current requirements and it is highly speculated that the DOL will seek to modify it as well. It is anticipated that the proposed rule will be published formally in early July 2015, which triggers a 60-day comment period. Many expect a quick turnaround by the DOL so that a final rule can be issued and effective sometime in 2016.