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In July, the Department of Labor published proposals to amend the "white collar" exemptions for the executive, administrative, and professional exemptions, as well as the exemption for highly-compensated employees. The proposed new overtime rules are designed to extend the FLSA's overtime protections to millions of workers and, if adopted, will have a significant impact on employers' operations.

The DOL's proposed amendments contain three key changes to the current FLSA regulations:

  1. Set the minimum salary required to qualify for the white collar exemptions (the administrative, executive, and professional exemptions) at the 40th percentile of weekly earnings for full-time salaried workers. Based on 2013 data, this would amount to a minimum salary of $921 per week or $47,892 annually, almost double the current level;
  2. Increase the total annual compensation requirement needed to exempt highly compensated employees to the annualized value of the 90th percentile of weekly earnings of full-time salaried workers. In 2013, this was $122,148 annually. This too is a large increase over the current salary basis of at least $100,000 annually; and
  3. Establish a mechanism for automatically updating the minimum salary and compensation levels for these exemptions going forward.

The proposal does not contain any specific changes to these exempt classifications' duties requirements "at this time." Instead, the DOL only "seek[s] to determine whether, in light of our salary level proposal, changes to the duties tests are also warranted" and "invites comments on whether adjustments to the duties tests are necessary, particularly in light of the proposed change in the salary level test."

These changes could impact as many as five million workers. The final rules are expected to be published by late 2016.

Action Item: Employers should consider the following actions:

  1. Identify the employee populations in your workforce currently classified as exempt under the white collar exemptions who will not meet the DOL's proposed increases in the salary basis tests, if and when the proposed rule becomes final.
  2. Create an action plan to be ready to raise the salary for certain employees to meet the proposed minimum salary threshold, or reclassify employees from exempt to non-exempt.
  3. If employees are reclassified from exempt to non-exempt, determine an appropriate hourly rate, work schedule, and timekeeping policy and practice for those employees, including an appropriate communication and training strategy and budgeting for salary increases and increased overtime costs.