After months of anticipation and many rumors about when the U.S. Department of Labor would release new proposed rules on which employees are eligible for overtime pay, the day has finally arrived. After a speech on the topic by President Obama the night before, the DOL publically announced on the morning of June 30th its proposed regulations, thereby starting the process necessary for the regulations to take effect. HR pros need to understand these new proposed regulations, but also the timeline they will be on before they can have the force of law.
Currently, the salary threshold for a “white collar” employee (a bona fide executive, administrative or professional) to be exempt from the Fair Labor Standards Act’s (FLSA) overtime requirement is $455 a week ($23,660 a year). That figure was last revised more than a decade ago in 2004. The new proposed rule would more than double that minimum salary amount to an estimated $970 a week ($50,440 a year). Employers are required to pay non-exempt employees overtime (a rate not less than one and one-half times the worker’s regular rate of pay) when they work more than 40 hours in a workweek.
The proposed regulations would also put in place a method for updating the salary level – it would be pegged to the 40th percentile of weekly earnings for full-time salaried workers. So the amount would change rather than be static (requiring new DOL regulations to be increased, as has historically been the case). The DOL estimates that the 2016 level will be approximately $970 per week, but no estimate is offered for future years.
Another notable change proposed by the new rules is an increase in the total annual compensation requirement needed to exempt workers that the FLSA defines as “highly compensated employees.” The proposed rules would increase this amount from a fixed minimum of $100,000 per year to a changing amount based on the 90th percentile of weekly earnings of full-time salaried workers (estimated to be $122,148 a year in 2016).
Notably, while the proposed rules would dramatically change these salary thresholds, the DOL is not making specific proposals to modify the standard duties tests also required to be met for an employee to be exempt from the FLSA. But, the DOL is seeking comment on whether those tests “are working as intended to screen out employees who are not bona fide white collar exempt employees.” Undoubtedly, employee-aligned stakeholders will push for tougher or more limiting tests on who meets those exemptions.
While these changes are big – the DOL estimates that the proposed rules would make nearly 5 million more white-collar workers eligible for overtime pay within the first year alone – they do not take effect immediately (as the Robert Frost-inspired title to this post suggests). Rather, once these proposed rules are published in the Federal Register (which should happen soon), there will be a required period for public comment before the DOL can issue final regulations (either making changes based on those comments or not) that employers will then have to follow. That process, plus possible court challenges, will likely keep any new rules from going into effect until sometime in 2016.
Nonetheless, it makes sense for employers to start thinking about these salary numbers and types of employees that will see either significant pay increases to stay exempt, or will become non-exempt and therefore entitled to overtime. Job duties and salary levels of exempt employees should be carefully reviewed, and plans – and budgets – should be assessed now, rather than only after these rules take effect. The DOL has posted a fact sheet explaining the proposed rules which, along with contacting your trusted attorney, is a good place to start.