The Employer's Legal Resource: DOL Issues Proposed Rule Regarding FLSA Overtime Exemption
On June 30, the Department of Labor published a proposed rule that would affect the salary level required for employees to qualify for the "white collar" exemption; that is, for those persons who qualify for the executive, administrative, and professional exemption under the FLSA. The proposed revision would more than double the minimum salary requirement, below which exemptions from overtime would not apply. Projected data for 2015 and 2016 would calculate the minimum annual salary at $49,452 ($951 per week) and $50,440 ($970 per week), respectively, if the proposed revisions take effect.
In order for the "white collar" exemption to apply, the employer must prove the following three requirements:
(1) the "salary basis test" -- the employee must be paid a predetermined, fixed salary not subject to reductions based on the quality or quantity of work performed;
(2) the "salary level test" -- the employee's salary must meet a minimum specified amount; and
(3) the "duties test" -- the employee's job duties must primarily involve executive, administrative, or professional duties. If an employee meets all three of these requirements, he or she is considered exempt and the employer is not required to pay overtime wages under the FLSA.
Under the current regulations (in effect since 2004), the requisite salary level is set at $23,660 annually or $455 weekly -- meaning that employees must earn at least that amount to be considered for the exemption.
The DOL's proposed rule would change the salary level to a formula equal to the 40th percentile of earnings for full-time salaried workers, rather than a set dollar amount, which would allow the salary level to continually increase based on future fluctuations in the market. The DOL's proposal also includes a mechanism for automatically updating the salary threshold every year, "to ensure that [it] will continue to provide a useful and effective test for exemption."
President Obama and the DOL have criticized the current regulation as out of date and depriving workers of a fair day's pay for a fair day's work. They claim the existing salary level excludes an "unacceptably high number of employees" who work more than forty hours a week from receiving any overtime. The current salary level is below the poverty threshold for a family of four and only eight percent of employees fall below the amount required for exemption. The DOL's proposed changes would affect nearly 5 million employees currently subject to the exemption within the first year.
The proposed rule is available here: RIN 1235-AA11. Written comments must be submitted to the DOL within sixty days.
While you may agree or disagree with the proposed regulation, it seems quite likely that some form of change is coming. Businesses with exempt employees earning salaries of less than $50,000 annually would be wise to look at the numbers now and consider how changes to the "salary level test" could affect your bottom line.
By Rebecca D. Stanglein, email@example.com