The U.S. Department of Labor’s long-awaited proposed rule regarding federal overtime pay regulations under the Fair Labor Standards Act (FLSA) was issued in a June 30, 2015 Notice of Proposed Rule Making (NPRM), and the firestorm of praise/criticism has begun.
While the final rule is months away, controversy started long before the NPRM was issued this week. President Obama’s March 2014 memorandum to the Secretary of Labor, captioned “Updating and Modernizing Overtime Regulations,” started this process. That memorandum directed the Secretary to:
- Consider how the regulations could be revised to update existing protections consistent with the intent of the FLSA;
- Address the changing nature of the workplace; and
- Simplify the regulations to make them easier for both workers and businesses to understand and apply.
The NPRM – entitled “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees” – is nearly 300 pages long (the Table of Contents alone is two full pages in length), and includes a legislative and regulatory history of the FLSA, an overview of the existing overtime regulations and requirements, and numerous exhibits and appendices. (That fact seems to indicate that the NPRM may have missed the mark set by President Obama’s third point.)
As most employers are aware, the FLSA provides basic rights and wage protections for U.S. workers, including both federal minimum wage and overtime requirements. Most workers covered under the FLSA must receive overtime pay of at least 1.5 times their hourly rate for hours worked in excess of 40 per week, unless otherwise exempted.
Under the current regulations, the salary threshold for that exemption is $455 per week ($23,660 per year) – in other words, unless an individual earns at least $455 a week, he or she automatically is not exempt from the overtime provisions of the FLSA.
Further, to be excluded from overtime, that same employee must hold a position that falls within specific exempt classifications: executive, administrative, and professional positions (“white collar” jobs), all of which are further defined in the regulations. To fall within a white collar exemption, an employee must meet the “duties test” for one of the white collar categories.
In addition, highly compensated employees (HCEs) may be exempt from overtime payments if they earn over $100,000 a year (which can include commission payments, nondiscretionary bonuses, and other nondiscretionary compensation), and if they earn at least $455 a week in salary or fees, and “customarily and regularly” perform the duties of one of the white collar positions listed in the FLSA.
What the NPRM says:
The NPRM focuses primarily on the existing salary thresholds required for white collar workers to be exempt, and proposes the following:
- Re-setting the standard salary level from $455 per week to $921 per week, which equates to a yearly salary of $47,892 (although, by the time the rule is final, the number are likely to be closer to $970 and $50,440);
- Increasing the total yearly compensation requirement needed to exempt HCEs – currently $100,000 – to $122,148; and
- Establishing a mechanism for automatically updating the salary and compensation levels going forward to assure that the levels accurately reflect economic reality.
What that means:
The proposed revisions mean higher minimum salaries for exempt employees. For example, an individual designated as within the “executive” exemption (which includes management and supervisory responsibilities) will have to be earning at least $47,892 – otherwise, that person will not meet the criteria for the white collar exemption from overtime pay, regardless of what his or her duties comprise.
The alternative is that employees with management or supervisory responsibilities earning less than the proposed threshold automatically will be entitled to overtime pay for hours worked in excess of 40 per week.
The proposed regulation revisions also mean that employers must remain alert and up-to-date on possible further changes to salary and compensation levels for qualification of exempt status.
What employers should do now:
Once these proposed regulations are published in the Federal Register, there will be a period of 60 days (which could be extended) within which interested parties can submit comments. Individuals, companies, and organizations interested in doing so should first:
- Review the Fact Sheet published on the DOL’s website to obtain a high-level view of the basic provisions of the NPRM;
- Look at the DOL’s Q&A on the new NPRM;
- Meet with legal counsel and human resource personnel to discuss whether to submit comments, or to participate in a group effort at comments;
- Be aware that while the NPRM included no changes to the white collar “duties test,” the DOL has asked specifically for comments regarding what, if any changes should be made in that test and that it is therefore likely that such changes may be included in the final regulations;
- Begin to review the salary bands of employees to determine the effect of the proposed changes on existing job responsibilities and titles;
- Proactively prepare for any necessary re-classification of employees from exempt to non-exempt status if/when the revisions are formalized, to avoid unintended legal liability once revisions become effective; and
- Recognize that nothing is final yet. In fact, with the notice and comment period, and with possible extensions of that period, the final regulations are not likely to go into effect until sometime in 2016.
For now, the best course of action is to stay calm, become knowledgeable, and work proactively to assure compliance with final regulations developed over the coming months