June 30, 2015Client Alert

U.S. Department of Labor Releases Proposed Changes to Federal Overtime Regulations

The U.S. Department of Labor (the Department) released proposed rules that will significantly alter how many employees are exempt from the overtime requirements of the Fair Labor Standards Act (FLSA). The Department estimates that its proposed rules would cause approximately 5 million employees who are currently exempt to become “non-exempt” and entitled to overtime pay for all hours worked over 40 in a workweek.

The major changes the Department envisions concern the amount of salary required for the “executive, administrative, and professional” exemptions and the amount of total annual pay required for the “highly compensated employee” exemption.

The proposed rule for the executive, administrative and professional exemptions raises the minimum salary level from its current level of $455 per week ($23,660 annualized) to approximately $921 per week ($47,892 annualized) in 2015 and $970 per week ($50,440 annualized) in 2016. The Department has proposed automatically updating this salary amount so that it will increase without additional rulemaking.

The proposed rule also raises the total annual compensation required to qualify for the highly-compensated employee exemption. The current annual compensation threshold is $100,000. The proposed rule would raise that amount to at least $122,148. Like the base salary requirement, the Department has also proposed updating the total annual compensation amount so that it will increase without additional rulemaking.

Many expected the Department to propose changes to the “duties test” applicable to the executive, administrative and professional exemptions. The Department, however, did not propose specific changes to any of the duties tests, but rather, solicited comments on them. Additionally, the Department solicited comments on whether employers should be permitted to pay nondiscretionary bonuses (such as some performance- or profit-based bonuses) to satisfy a portion of the new salary threshold.

Although the changes are certainly significant, as they are proposed, they do not have the force of law and could change in their final form. Moreover, the final, binding version of the changes to the FLSA’s overtime regulations will not become effective for some time. The proposed rules will be published in the Federal Register later this week, after which there will be a 60-day comment period. The Department will then consider the comments it receives and issue final regulations, which may not go into effect for several months after publication. In all likelihood, the new regulations will not go into effect until 2016. In the interim, it makes sense for employers to revisit their salaried exempt classifications to prepare for the upcoming changes.

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