This week the Department of Labor announced proposed changes to federal regulations defining the scope of the executive, administrative, and professional employee exemptions contained in Section 13(a)(1) of the Fair Labor Standards Act. When the proposed rule is published in the Federal Register there will be a 60-day comment period after which the Department of Labor will evaluate the comments and then publish a final regulation.

The proposed changes would increase the salary component of the executive, administrative, and professional employee exemptions from $455 per week ($23,660 per year) to the 40th percentile of weekly wages, estimated to be $970 per week ($50,440 per year) by the first quarter of 2016 when the regulations would become effective. The total compensation level for highly compensated employees who would not need to meet the duties test will increase from $100,000 per year to an estimated $122,648 per year which is the 90th percentile of weekly wages. Both of these new compensation levels would increase annually either by following fixed percentiles of pay or by updating the requirements based on the CPI-U.

The practical effect of these changes will be to deny the overtime exemption to large numbers of employees who are now paid salaries between $24,000 and $50,000. The alternative to paying these employees time and one-half will be the adoption of a suitable alternate pay plan.