On June 30, 2015, the United States Department of Labor (“DOL”) published a Notice of Proposed Rulemaking proposing significantly revised salary requirements for the exemptions to the Fair Labor Standards Act’s (“FLSA”) minimum wage and overtime provisions. The proposed regulations more than double the threshold salary for the “white collar” or “EAP” exemptions (including the executive, administrative, professional, outside sales, and computer employee exemptions), increase the threshold salary for the “highly compensated employee exemption,” and propose an automatic annual increase of these threshold salaries. The DOL estimates that these changes will render 4.6 million currently exempt employees ineligible for the white collar exemptions and 36,000 currently exempt employees ineligible for the highly compensated employee exemption.
Currently, employees satisfying the duties tests for the white collar exemptions are exempt from the FLSA’s minimum wage and overtime provisions if they earn $455 per week ($23,660 annually for full-year employees). The DOL proposed an increase to a standard set salary level at the 40th percentile of all full-time salaried workers—$921 per week ($47,892 annually for full-year employees) based on 2013 data from the Bureau of Labor Statistics and a projected $970 per week ($55,440 annually for full-year employees) for the first quarter of 2016. The DOL has also proposed increasing the threshold salary for the highly compensated employee exemption from $100,000 to $122,148—reflecting the 90th percentile for all full-time salaried workers. These increases will cause many exempt employees to be classified as non-exempt and, therefore, eligible for overtime compensation.
The DOL has also proposed an automatic annual update to these salary thresholds “to prevent the level from becoming outdated with the often lengthy passage of time between rulemakings.” The DOL has solicited comments regarding the method for determining the amount of the annual adjustment and is considering either a fixed percentile of the weekly earnings for full-time salaried workers or an adjustment tied to the Consumer Price Index for all urban consumers. Regardless of the method of calculating the annual adjustment, the proposed revisions would require employers to evaluate employee classifications on an annual basis.
Although the Notice of Proposed Rulemaking does not propose changes to the duties tests for the white collar exemptions, the DOL has solicited comments on the subject. The DOL notes that “[p]ossible revisions include requiring overtime-ineligible employees to spend a specified amount of time performing their primary duty (e.g., a 50 percent primary duty requirement as required under California state law) or otherwise limiting the amount of nonexempt work an overtime-ineligible employee may perform, and adding to the regulations additional examples illustrating how the exemptions may apply to particular occupations.” The DOL has also solicited comments regarding the inclusion of nondiscretionary bonuses to satisfy a portion of the salary requirements, but has not proposed regulatory changes at this time.