In March 2014, President Obama directed the Secretary of Labor to “modernize and streamline” the Fair Labor Standards Act’s overtime exemption regulations governing executive, administrative and professional employees. On July 6, 2015, the Department of Labor (DOL) published its proposed regulatory changes to these so-called ‘white collar’ overtime exemptions, and despite their significance, they are quite simple.
The DOL essentially proposed three general changes to the white collar overtime exemptions.
1. Increase the Minimum Salary Requirement
The DOL proposed increasing the minimum salary requirement for the three white collar exemptions from $455 per week ($23,660 annually) to $921 per week ($47,892 annually), which is currently the 40th percentile of earnings for full-time salaried workers. Though each white collar exemption has unique ‘primary duties’ requirements, all three share the same minimum weekly salary requirement. Simply changing this number affects the scope and applicability of all three exemptions.
The effect of this change can be gauged by making a list of every employee who 1) currently qualifies for a white collar overtime exemption, and 2) earns more than $455 but less than $921 per week. Under the proposed regulations, every employee on the list could be entitled to overtime compensation. According to the DOL’s own estimates, during the first year under the new regulations, 4.6 million currently exempt workers would be entitled to overtime compensation “without some intervening action by their employers.”
2. Increase the Minimum Salary for Highly Compensated Employees
Certain highly compensated employees (HCEs) are exempt from the FLSA. The DOL proposed increasing the minimum annual compensation level for the HCE exemption from $100,000 to $122,148, which is currently the 90th percentile of earnings for full-time salaried workers.
3. Update Salary and Compensation Levels Annually
The DOL proposed establishing a mechanism to automatically update minimum salary and compensation levels annually so they will remain a useful and effective test for exempt status. The DOL proposed using either a fixed percentile of wages or the Consumer Price Index for All Urban Consumers (CPI-U).
According to the DOL, these proposed changes preserve the FLSA’s intended overtime protections, and simplify the identification of nonexempt employees, which should make it easier to understand and apply the executive, administrative and professional employee overtime exemptions.
Though the DOL did not propose any changes to the standard duties tests that must be satisfied under the current regulations, it is seeking comments on whether these tests are working as intended. The DOL is concerned that in some instances employees performing a disproportionate amount of nonexempt work are still being classified as exempt.
The deadline to submit comments about the DOL’s proposed regulations is September 4, 2015.
The Human Equation prepares all risk management and insurance content with the professional guidance of Setnor Byer Insurance & Risk.