DOL Seeking Comments on Proposed Amendments to FLSA “White Collar” Exemptions

07/13/2015 / Phyllis Karasov, Daniel J. Ballintine and Patrick Kratz

On June 30, 2015, The U.S. Department of Labor (“DOL”) released a Notice of Proposed Rulemaking, proposing changes intended to modernize and streamline exemptions to the minimum wage and overtime pay requirements of the Fair Labor Standards Act (“FLSA”). The FLSA guarantees a minimum wage and overtime pay at a rate of not less than one and one-half times the employee’s regular rate for hours worked over 40 in a workweek. The FLSA also provides a number of exemptions, including the so-called “white collar” exemptions. Current regulations exempt salaried employees who are paid a minimum of $455 per week ($23,660 per year) and who qualify as executive, administrative, professional, outside sales, and/or computer employees.

The proposed rules, which have not yet been approved or implemented, would increase the minimum standard salary level necessary to qualify for the exemption to the 40th percentile of weekly earnings for full-time salaried workers as early as 2016. The proposed rules also contain a mechanism that would automatically adjust the minimum salary and compensation levels each year to remain within the 40th percentile of weekly earning for full-time salaried workers. This automatic adjustment is intended to prevent the salary level from becoming outdated by the passage of time between rulemakings. The standard salary level required for exemption was last updated in 2004. If the rules go into effect in 2016, the new salary threshold would immediately increase to $970 per week ($50,440 per year).

The proposed rules also seek to increase the total annual compensation requirement needed to exempt highly compensated employees to the annualized value of the 90th percentile of weekly earnings of full-time salaried workers. Under the present rules, to qualify for this exemption an employee must be paid a salary of at least $100,000 annually and perform certain job duties. An increase to the 90th percentile of earnings for full-time salaried employees is estimated to be approximately $122,000 annually. This value would also be automatically updated each year to the 90th percentile threshold. If the automatic annual adjustments take effect, employers may need to modify their payrolls each year to ensure their employees are properly classified as exempt.

The proposed rules do not currently contain any revisions to the white-collar exemptions’ duties tests, which require that the employee’s job duties satisfy certain standards. Instead, the DOL has requested comments from the public on whether changes to portions of the duties tests are needed. The DOL also seeks comments on whether nondiscretionary bonuses and incentive payments should be included in determining an employee’s salary for the purpose of qualifying for an exemption. Such payments are not currently included unless the employee is a highly compensated employee.

The proposed rules are subject to a 60-day comment period. Members of the public have 60 days to submit comments to the DOL. After another 30 days for reply comments, the DOL may revise the proposed rules before they take effect.

Employers should carefully evaluate how the proposed changes could affect their staffing. If a currently exempt employee does not meet the anticipated new salary threshold, that employee will need to be given a pay increase to remain exempt. Employers should consider the financial impact of raising the salary of such employees to meet the new exempt standard, as opposed to keeping the salary at its current level, reclassifying the employee as nonexempt, and paying overtime. Reclassifying employees as nonexempt may require guidance on managing worked hours, employer-specific rules regarding overtime, and how overtime will be calculated if the employee continues to be paid on a salary basis. If these options are not financially feasible, employers should evaluate whether reassigning or outsourcing certain duties or making other staffing adjustments would enable such employees to complete their weekly work within 40 hours.

Please contact any of the labor and employment law attorneys at Larkin Hoffman with questions.