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Department of Labor issues notice of proposed rulemaking for overtime regulations, seeks to more than double salary requirement

On June 30, 2015, the United States Department of Labor (DOL) published a Notice of Proposed Rulemaking (NPRM) that seeks to revise the Fair Labor Standards Act’s (FLSA) overtime regulations. Specifically, the DOL wants to revise the executive, administrative, professional, outside sales and computer employee exemptions, also known as “white collar” or “EAP” exemptions, and the exemption for highly-compensated employees.

DOL hopes to accomplish the following with this NPRM:

[DOL] seeks to update the salary level to ensure that the FLSA’s intended overtime protections are fully implemented, and to simplify the identification of nonexempt employees, thus making the EAP exemption easier for employers and workers to understand.  [DOL] also proposes automatically updating the salary level to prevent the level from becoming outdated with the often lengthy passage of time between rulemakings. Lastly, [DOL] is considering whether revisions to the duties tests are necessary in order to ensure that these tests fully reflect the purpose of the exemption.

Salary Requirement Increase

Currently, the salary basis test requires (with certain exceptions) that exempt employees receive at least $455 in guaranteed salary per week. This amount translates to an annual salary of $23,660. DOL proposes to increase the weekly salary requirement to $970, which equals $50,440 annually and represents the 40th percentile of earnings for full-time salaried employees (based on DOL’s projections for the first quarter of 2016). For highly-compensated individuals, the current compensation level is $100,000 annually, which DOL proposed to increase to $122,148 (90th percentile of earnings for full-time salaried employees).

DOL also proposes to build a mechanism into the new regulations that will automatically adjust the minimum salary/compensation requirements on an annual basis. DOL plans to implement automatic increases by using either a fixed percentage increase or the Consumer Price Index for All Urban Consumer (CPI-U). DOL asks for comments regarding which of these proposals is most appropriate for automatic increases.

Other Considerations

DOL is also considering making revisions to the duties tests for each of the white collar exemptions. DOL is requesting comments to address those issues, but possible revisions include requiring that the exempt employee perform a minimum amount of work related to his/her primary duty or limiting the amount of non-exempt work that individual can perform. DOL is also considering the inclusion of additional examples of how the regulations play out in specific occupations.

In addition, DOL is considering whether the allow employers to apply non-discretionary bonuses to meet the salary requirements, a practice that is currently allowed to meet the highly-compensated employee exemption.

Why is DOL Proposing These Changes?

DOL states that its proposed changes to the salary and compensation requirements are the simplest way to turn the salary level into a bright line rule for determining which employees satisfy the FLSA’s white collar exemptions. Despite DOL’s reference to a bright-line rule, however, it has no intention of dropping the various duties tests for those employees who meet or exceed the proposed salary levels: Those employees will still need to satisfy the duties test for their respective exemptions in whatever form that test takes after DOL revisions.

As for the proposal to automatically increase the compensation requirements, DOL states that automatic increases will prevent the stated levels from becoming outdated, particularly based on the long periods of time between revisions to the regulations.

Conclusion

The takeaway for employers is simple: Prepare yourselves for increased salary and compensation requirements to satisfy the white collar and highly-compensated employee exemptions and for automatic increases to those requirements.

If you would like to submit comments regarding the NPRM for DOL’s review, see page 2 of the NPRM (linked above) for instructions on how to do so. The comment period will be open for 60 days after the NPRM is published in the Federal Register.

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