Earlier this week the Department of Labor revealed its long-awaited proposal to update the Fair Labor Standards Act’s overtime rules. According to the DOL, the proposed changes would increase the number of white collar workers who qualify for overtime pay by an estimated 5 million, and would guarantee overtime pay to approximately 40% of all full-time salaried workers in the country.

The proposed regulations include modifications to the FLSA’s overtime exemption for “executive, administrative, professional, computer, and outside-sales employees” (an exemption often referred to as the “EAP” or “white collar” exemption), as well as to the exemption for “highly-compensated employees.”

The proposed regulations are scheduled for official publication in the Federal Register on Monday, July 6. Once published, a 60-day comment period begins, during which the Department of Labor accepts public comments on the proposed rules. After this comment period has closed, the DOL will review and consider the comments, and may make modifications to the proposed rules based on its review. A final version of the regulations will then be published, along with a date on which the final regulations go into effect.

Summary of the Proposed Regulations

(1) The FLSA’s white collar exemption currently applies to employees whose primary duties are executive, administrative, or professional, and who are paid at least $445 per week ($23,660 per year).

The DOL’s proposed rules would more than double the salary that workers must be paid in order to qualify for the white collar exemption, raising the minimum from $445/week to approximately $970/week ($50,440 per year).

(2) The FLSA’s “highly compensated employee” exemption currently applies to workers whose total annual compensation is $100,000 or more, and who customarily and regularly perform at least one of the duties of an exempt executive, administrative, or professional employee.

Under the proposed new rules, the minimum annual compensation for this exemption would increase from $100,000 to $122,148.

(3) Currently, minimum salary requirements for exempt workers are set by regulation, and remain static until the DOL formally changes the figures through the standard notice and rulemaking process. The white collar minimum salary threshold of $445 per week, for example, was set in back in 2004, and has not changed since then.

By contrast, the proposed regulations link minimum salary requirements for exempt workers to either the Consumer Price Index, or a fixed percentile of weekly earnings for all full-time, salaried workers (specifically, to the 40th percentile of weekly workforce earnings for white collar employees, and the 90th percentile for highly-compensated employees).

By pegging minimum salary requirements to one of these sources, the DOL would no longer need to formally revise FLSA regulations every time it seeks to alter minimum salary requirements for exempt workers. Instead, minimum salary requirements would increase automatically as overall workforce earnings increased.

(4) The FLSA’s white collar exemption applies only to workers who earn more than the minimum salary threshold, and whose primary duties are executive, administrative, or professional. The latter requirement is often referred to as the “duties test.”

The DOL’s proposed regulations do not make any modifications to the “duties test.” But the proposal does present a list of questions about the current duties test, and seeks public comment on whether, and how, the test should be modified. This non-specific approach raises the troubling possibility that the DOL could make substantial changes to the duties test when it issues final regulations, without ever actually presenting the changes for public comment. Should the DOL attempt to modify the overtime duties test in such a non-transparent manner, the enforceability of those regulations would certainly be brought into question.

Next Steps

If the proposed regulations are approved in current form, nearly all employers will see an impact on their workforces and bottom lines. Therefore, employers are strongly advised to take advantage of the opportunity to comment on the proposed changes. In particular, employers should look closely at currently exempt positions that would fall below the proposed new salary thresholds. Employers may voice their opinions by submitting comments electronically at http://www.regulations.gov, or by mailing comments directly to the DOL.