We noted last year that the Obama Administration had directed the United States Department of Labor (DOL) to review and amend the so-called “white collar” exemptions to the overtime requirements of the Fair Labor Standards Act to narrow the exemptions and make more workers eligible for overtime wages. The DOL has finally issued proposed revised regulations in response to President Obama’s directive, and has proposed significant changes (described in more detail below). One thing is clear, however, in making no secret of their policy bias in favor of employees, the DOL and administration have aimed to significantly decrease the number of employees classified as exempt (not eligible for overtime) and pass that cost onto employers. For instance, nearly 5 million currently classified exempt employees will need to be reclassified to non-exempt if the proposed rules become final. As but another example, the proposed minimum salary threshold would be updated annually moving forward so that 40 percent of all salaried employees in the U.S. remain below the threshold (and thus must be paid overtime). The 40th percentile is approximately double the percentile for the 2004 revisions that raised the salary threshold to its current level. Further, the DOL estimates that the proposed changes will result in direct employer costs between $239.6 and $255.3 million per year.
With all that said, it is worth noting that these are proposed rules — meaning before becoming final, the proposed rules need to pass through a review process during which comments are submitted by the public and then considered by the DOL. It is also possible that any new proposed rules that are viewed as excessive would be challenged in court, potentially further delaying when the rules could go into effect. The timing of the proposed rules indicates however that the White House is hoping that the proposed rules are finalized and go into effect prior to President Obama leaving office.
The following is a summary of proposed rules and issues on which the DOL seeks comments:
- Minimum salary threshold will be raised from the current $455/week ($23,660 per year) to $970/week ($50,440 per year assuming the rule becomes effective in the first quarter of 2016).
- Minimum salary threshold for highly compensated employees will be raised from the current $100,000 per year to $122,480 per year.
- Minimum salary threshold for employees in the motion picture industry will be raised from $695/week ($36,140 per year) to $1,404/week ($73,008 per year).
- The salary thresholds would be updated annually to maintain the current proportion of exempt employees. The DOL has proposed using a methodology tied either to the 40th percentile of non-exempt salaried employees (which the DOL used to calculate the revised threshold salary level) or to the Consumer Price Index for All Urban Consumers (CPI-U) (i.e., inflation measurement).
- The standard duties test (compared using both a long and short duties test) will remain.
- The DOL is considering revisions to the standard duties test such that employees spend a minimum amount of time performing their primary duties (similar to California’s 50 percent primary duty requirement) and adding other examples illustrating how the white collar exemptions apply to particular occupations. The DOL, however, has not proposed any specific changes at this time.
- The DOL is considering allowing non-discretionary bonuses to count toward a portion of the salary level threshold calculation. The DOL has recommended, however, that non-discretionary bonuses must not exceed 10 percent of threshold salary on a weekly basis and the bonus payments must be made at least monthly.
- The DOL is not considering expanding the salary level threshold calculation to include board, lodging or medical disability, life insurance or contributions to retirement plans, or other fringe benefits.
- The DOL is not considering expanding the salary level threshold calculation to include commissions.
- The DOL is considering adding other illustrative examples for the computer related occupation exemption.