On June 30, 2015, the U.S. Department of Labor (DOL) issued highly anticipated proposed regulations that would make it harder for employers to classify employees as exempt from overtime pay requirements. The proposal is in response to President Obama’s March 13, 2014 Presidential Memorandum, which directed the DOL to update the Fair Labor Standards Act (FLSA) regulations.
Under current FLSA regulations, overtime and minimum wage requirements do not apply to employees who perform certain duties (most notably executive, administrative or professional duties) and are paid a salary of at least $23,660 per year. These requirements also do not apply to “highly compensated” employees, meaning employees earning at least $100,000 per year.
The DOL’s proposed regulations seek to:
- Increase the threshold salary level for exempt status to the 40th percentile of earnings for full-time salaried workers. The DOL estimates that this would result in a $50,440 per year salary requirement by the time the final rule is implemented in 2016.
- Increase the threshold salary for the highly compensated employee exemption to the 90th percentile of earnings for full-time salaried workers. The DOL estimates that this would result in a salary requirement of $122,148 per year.
- Automatically update the salary threshold levels by maintaining them at a fixed percentile or tying them to changes in the Consumer Price Index.
In effect, the proposed regulations would require employers to pay overtime to employees who earn less than the $50,440 threshold, regardless of their duties (except for employees qualifying for an exemption that does not have a salary requirement—for example: outside sales employees, teachers, attorneys and physicians). The DOL estimates that 21.4 million workers currently classified as exempt executive, administrative or professional employees could be affected by the proposed rule.
Significantly, the DOL did not propose specific changes to the duties tests that must be met for an employee to qualify for an executive, administrative or professional exemption. The DOL did, however, invite comments on various issues related to the duties tests and on whether the duties tests are “working as intended” or are instead being used to deny overtime pay to employees who perform predominantly non-exempt work. It is thus possible that the final rule will include changes to the duties tests.
The proposed regulations will be published in the Federal Register and then enter a comment period. During this time, interested parties can submit their input on the DOL’s proposal. Comments can be submitted by various methods, including electronically through http://regulations.gov, referencing Regulatory Identification Number 1235-AA11. The rules are a form of executive rulemaking and do not require congressional approval.