The Department of Labor has just announced a proposed rule that would increase by more than two times the weekly salary required to treat most employees as exempt from the Fair Labor Standards Act’s overtime requirements.
Under the current regulations, employers are not required to pay overtime compensation to their executive, administrative, and professional employees (“white collar workers”) who receive more than $23,660 per year or $455 per week in salary, for any hours worked over 40 in a workweek.
The proposed rule would raise the threshold salary exemption level, so that employers would be required to pay overtime to their white collar workers who receive less than $50,440 per year or $970 per week. This increase would set the standard salary level at the 40th percentile of weekly earnings for full-time salaried workers for 2016.
The proposed rule would also increase the total annual compensation needed to exempt highly compensated employees from overtime compensation from $100,000 to $122,148 (90th percentile of weekly earnings for full-time salaried workers for 2016).
The increases are significant, but the DOL did not propose (for now) changes to the tests for what exempt employees must do to maintain the exemption (i.e., the “duties tests”). Nevertheless, the DOL did ask for comments on several questions about the duties tests, especially as it relates to managerial employees, suggesting that it may revisit that issue in the future. It also asked for comments on whether non-discretionary bonuses might be included in the calculation of weekly salary in order to meet the new proposed threshold. Currently, the DOL considers just base salary in evaluating whether the employee meets the salary threshold. Again, though, the DOL did not make any specific proposals.
Once the notice of proposed rulemaking is published in the Federal Register, interested parties may submit written comments during a 60-day comment period. After that, the DOL will review the submitted comments and issue a final rule. Because the DOL has the power to issue the rule without Congressional approval, many expect the rule to be challenged in court and perhaps Congress as well. Regardless, the new rule could be finalized and in effect by 2016. Employers should begin evaluating the exempt status of employees in light of the proposed rule to ensure they have enough time to adjust to the potential for many employees being treated as non-exempt for the first time in their careers or even in the history of the job position.