Client Alert: Proposed Changes to Overtime Exemptions under the Fair Labor Standards Act
In 2015, the U.S. Department of Labor introduced a proposed rule which would, in part, double the salary threshold required under the Fair Labor Standards Act (“FLSA”) to maintain exempt status under the so-called “white collar” exemption. The white collar exemption applies to those employees classified as exempt under the executive, administrative and professional exemptions of the FLSA.
Generally, to qualify for the white collar exemption, an employee must be paid a fixed weekly salary (the “salary basis test”), must primarily perform executive, administrative or professional duties in accordance with the Department of Labor regulations (the “duties test”) and must be paid at least $455 per week ($23,660 annually) (the “salary level test”). The proposed regulations will change the salary level test and increase the salary threshold so that an employee will have to be paid at least $970 per week ($50,400 annually) to retain exempt status. The Department of Labor estimates that 4.6 million workers will become non-exempt when the proposed rule becomes effective.
There has been much debate about when the proposed rule will be published, particularly in light of the upcoming election. Commentators previously anticipated that the final rule would be published in mid-to-late 2016. Recently, United States Secretary of Labor Thomas Perez indicated that the final rule would be published as early as spring of 2016. Absent a Congressional challenge to the proposed rule under the Congressional Review Act, the final rule would become effective 60-90 days after publication.
It is strongly recommended that employers begin preparing for the proposed changes to the FLSA now by performing an internal “exemption audit.” The internal audit would include the following actions:
- Review payroll records and identify employees classified as exempt and non-exempt.
- Review salary information for exempt employees. Identify employees making at least $23,660 per year but less than $50,400 per year. These are the employees who will be affected by the proposed changes to the FLSA, or those in the “zone of danger.”
- Determine whether a salary increase to $50,400 per year is possible for the employees impacted by the proposed change, or whether the employees will become non-exempt once the final rule becomes effective.
- Analyze the hours worked by those employees who may become non-exempt and determine how many hours on average are worked in excess of 40 each week, making sure to include any time spent working “off the clock,” which includes time spent drafting and responding to electronic communication.
- If these employees frequently work more than 40 hours per week, determine whether it is possible to reallocate or reduce job duties to keep hours worked at 40 hours per week. Otherwise, be prepared to pay overtime to these employees and plan for increased labor costs once the final rule becomes effective.
These are a few examples of actions employers can take now to plan for the proposed changes to the FLSA. For additional insight on the proposed rule and how it will impact your organization, further information is available on the Department of Labor’s website at http://www.dol.gov/whd/overtime/nprm2015/faq.htm or by contacting Hutchison PLLC’s employment attorney, Holly Hammer, at 919-829-4289.
This Alert is provided for informational purposes only and is not intended to be, nor should it be construed as, legal advice on any specific matter, nor does it represent any undertaking to keep recipients advised of all relevant legal developments. This Alert does not create or constitute an invitation to create an attorney-client relationship, nor should it be construed as an advertisement or solicitation for legal services. This material may be considered Attorney Advertising in some states. Prior results do not guarantee a similar outcome.
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