The U. S. Department of Labor’s Wage and Hour Division finally released its 295-page long Notice of Proposed Rulemaking (NPR) that proposes changes to the executive, professional, highly-compensated, and administrative employee exemptions from the Fair Labor Standards Act (FLSA) overtime requirements. The release, which was posted June 30, 2015, was accompanied by a Fact Sheet and Frequently Asked Questions (FAQ) list.
Employers should be aware of the following key sections:
SALARY TEST CHANGES
There are basically two changes that stand out. One is the weekly salary that must be paid for an employee to qualify for the executive, professional, or administrative exemptions from the FLSA overtime rule. The other is the annual compensation that must be paid for an employee to qualify for the highly-compensated exemption.
Since the last update in 2004, the current salary threshold for the executive, professional, and administrative exemptions is $455 a week, which translates into $23,660 a year. The proposed minimum weekly salary is set at the 40th percentile of weekly earnings for all full-time salaried employees. Since the Final Rule is expected to be issued in 2016, the projected new figure is $970 a week ($50,440 a year). Yes, that’s more than double the current threshold.
The effect? A dramatically increased number of salaried employees will qualify for overtime pay. In fact, in his editorial about the proposed rule, President Obama noted that approximately five million employees in the United States will qualify for overtime pay if the proposed rule is adopted.
The surprise in the NPR is the proposal to automatically increase the minimum weekly salary requirement each year based on data from the Bureau of Labor Statistics. This marks the first time since FLSA was passed in 1938 that such a requirement has been suggested. How to index the figures has not yet been chosen. Two different indexing methods have been studied and the Department is soliciting comments on the process.
Similarly, the Department has proposed to increase the minimum annual compensation for the highly-compensated employee exemption. Currently, the figure is $100,00. The proposed figure is, in 2016 dollars, $122,148. This figure, too, is proposed to be increased annually based on the same index that would apply to the weekly salary requirement.
NO DUTIES TEST CHANGES
Though Duties Test changes were predicted for the executive, professional, and administrative exemptions, even adoption of a California-style requirement that 50 percent of an exempt employee’s time each week be devoted to performing exempt tasks, no changes are forthcoming. Rather, the Department is soliciting comments about the respective Duties Tests. No specific regulatory changes have been proposed at this time.
What will the Department do regarding the Duties Tests? There are two trains of thought: by not proposing changes, commentators believe the Department may have foreclosed its ability to make regulatory changes without further notice and comment; and, the solicitation for comments may indicate that the Department is considering issuing a second round of proposed amendments and opening up a second comment period at a more opportune time.
In the next few days, the NPR is expected to be formally published in the Federal Register, and President Obama is scheduled to publicly comment on July 1st. The Federal Register will provide the timeframe during which written comments will be accepted, which should be at least 60 days. Comments may be submitted at regulations.gov.
Disclaimer: I am not a licensed attorney. My blogs are based on my own experiences, interviews (where credited), and loads of research, and do not represent legal advice.