DOL Proposes Significant Changes to Overtime Rules
The U.S. Department of Labor (DOL) recently released a much-anticipated notice of proposed rulemaking updating the regulations to the Fair Labor Standards Act (FLSA). If adopted, the new rules will significantly increase the number of employees eligible for overtime and more than double the minimum salary threshold for the FLSA’s “white-collar” exemptions. President Barack Obama touted the proposed rules during a recent visit to La Crosse, saying the rules will benefit the middle class by increasing pay for millions of Americans. Because the change is analogous to an Executive Order, it does not have to be approved by Congress.
The FLSA requires that employees be paid overtime at a rate of 1½ times their regular pay unless they fall under one or more of the Act’s exemptions. The DOL’s proposal seeks to revise the executive, administrative, professional, outside sales, and computer employee exemptions (generally known as the “white-collar” exemptions).
Under the current regulations, an employee is exempt from overtime if he receives a salary of at least $455 per week ($23,660 annually) and satisfies tests related to the duties and responsibilities of his position. Proponents of the proposed rules argue that employers have skirted the FLSA’s overtime requirements by labeling employees “managers” even though they perform nonmanagerial duties.
The proposed rules would increase the salary threshold from $455 per week to $970 per week ($50,440 annually). Additionally, the rules would provide a mechanism to automatically update the salary level annually by using either a fixed percentile of wages or the Consumer Price Index. The goal of the mechanism is to prevent the salary threshold from becoming outdated.
Also, the salary threshold for highly compensated employees (currently $100,000 annually) would increase to $122,148 per year. Under the FLSA regulations, highly compensated employees are exempt if they meet the salary threshold and a lower duties standard.
Although the proposed rules do not mention any revisions to the duties tests used to determine whether employees are exempt, the DOL specifically invited the public to comment on whether the current duties tests are “working as intended” to properly screen out bona fide white-collar workers. Because the DOL invited comments on the issue, it’s possible that the final rules will revise the duties tests as well. The public has until September 4 (60 days from the release of the proposed rules) to provide feedback to the DOL. The proposed rules and details on how to make comments are available here. The final rules are expected to go into effect sometime in 2016, and congressional approval is not required.
The White House expects the proposed rules to immediately entitle approximately five million workers to overtime. The rules will affect most businesses, but their impact will be the most pronounced in the retail, hospitality, and nonprofit sectors, where pay tends to be lower. The rules will have more of an impact in areas of the country where lower wages are prevalent.
Employers should begin planning now in anticipation of the new rules. For instance, analyze your employees’ pay, and identify positions that do not meet the proposed salary threshold. Also, determine the amount of time exempt employees spend on exempt and nonexempt work since the final rules may include changes to the duties tests. After completing this analysis, consider whether to reclassify positions that do not meet the new salary threshold or increase employees’ pay.
This article, slightly modified to note recent updates, was featured in the August 2015 issue of the Wisconsin Employment Law Letter, which is edited by Axley Brynelson Attorney Saul Glazer and published by BLR®—Business & Legal Resources. Reproduced here with the permission of BLR®—Business & Legal Resources.
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