By: Nicholas J. Linz, Attorney at Hager, Dewick & Zuengler, S.C.
On July 6, 2015, The United States Department of Labor (“DOL”) published proposed changes to the Fair Labor Standards Act (“FLSA”) which affect overtime pay protections. The DOL last updated these regulations in 2004. The goal of the proposed changes is to increase the number of employees who benefit from FLSA overtime regulations by updating the salary level required to qualify for what is generally referred to as the “white collar” exemption. The DOL estimates that the proposed changes will affect approximately 4.6 million workers. These workers will no longer qualify for the exemption and will become entitled to overtime pay.
Currently, the FLSA requires that all non-exempt employees receive overtime pay for all hours worked in excess of forty (40) hours per week. The proposed changes stated within the DOL’s Notice of Proposed Rulemaking focus the “white collar” exemption, which excludes certain executive, administrative, and professional employees from federal minimum wage and overtime protections. Currently, to qualify for the “white collar” exemption, employees must: (1) be salaried, meaning that they are paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed; (2) earn at least $455 per week or $23,660 annually; and (3) primarily perform executive, administrative, or professional duties, as further defined by the DOL.
In addition, under the current regulations, certain highly compensated employees are exempt from the FLSA’s overtime pay requirements if they are paid total annual compensation of at least $100,000 and perform office or non-manual work, and customarily perform at least one of the exempt duties or responsibilities of an executive, administrative, or professional employee.
The DOL’s three key proposed changes to the current FLSA regulations are as follows:
- A new minimum salary level to qualify for the exemption. The new salary would be set at the 40th percentile of national weekly earning for full-time salaried workers. In 2013, this amount was $921 per week or $47,892 annually. The DOL projects that in 2016, when the rule will likely take effect, the 40th percentile will be about $970 per week or $50,440 annually.
- A new minimum total annual compensation requirement needed to qualify for the highly compensated exemption. The compensation amount would be set at the 90th percentile of weekly earnings for full-time salaried workers. In 2013, this was $122,148 annually.
- Establish a mechanism for annually updating the minimum salary and compensation levels for these exemptions going forward.
The DOL’s Notice of Proposed Rulemaking does not propose any changes to the “duties” requirements of the “white collar” exemption, nor has it reached a conclusion as to the mechanism or formula it will use to update minimum salary and compensation levels going forward. Further clarification may also be needed regarding whether non-wage compensation, such as bonuses, will be factored into the employee’s salary for purposes of qualifying for the exemption. The DOL has sought comments and input from interested parties regarding these and other issues. The public can review the entire text of the Notice of Proposed Rulemaking and submit comments online at www.regulations.gov.
The new regulations will not become effective until at least sixty (60) days after they are published. As a result, it is anticipated that the new regulations will not go into effect until sometime in 2016. Employers who have employees that will be affected by the proposed changes are advised to have a plan in place to address the potentially increased labor costs, such as implementing and enforcing policies related to how much overtime employees are required or allowed to work.
The publicity of the proposed changes may lead to an increase in employee inquiries regarding whether they are or will be entitled to overtime pay. State and Federal law requires that all non-exempt employees receive overtime pay. Wage and Hour claims are often the result of the misclassification of a non-exempt employee. Employers should understand that their internal classification of an employee’s position (salaried, hourly or independent contractor) does not necessarily determine whether the exemption applies. The position must qualify for the exemption based upon the DOL’s standards. To avoid State or Federal wage and hour claims, Employers would be wise to familiarize themselves with the exemption requirements and ensure that all exempt and non-exempt employees are properly compensated and classified.