Proposed USDOL Rule Would Create Millions of Newly Overtime-Eligible Employees

The United States Department of Labor (USDOL) has finally released its much-publicized and frequently delayed Notice of Proposed Rulemaking, which would update the Fair Labor Standards Act (FLSA) regulations concerning who is and is not eligible for overtime pay under federal law. The USDOL estimates that some 5 million “white collar” workers will become newly eligible for overtime pay should the proposed rule go into effect. 

Currently, to qualify for one of the FLSA’s “white collar exemptions” from minimum wage and overtime, FLSA regulations say employees must meet certain minimum tests related to their primary job duties and be paid on a salary (or in certain cases, fee) basis at not less than a specified minimum amount. These include the executive, administrative, professional, and computer employees exemptions.

Contrary to much of the initial speculation that has taken place since President Obama directed the Secretary of Labor to update the FLSA regulations, the proposed rule does not address any changes to the white collar exemptions’ duties tests. Instead, the proposed rule focuses primarily on updating (i.e., raising) the salary and compensation levels needed for white collar workers to be exempt. Specifically, the USDOL proposes the following:

• Increase the standard salary requirement — currently set at from $455 per week (or $23,660 per year) — to meet the standard salary level at the 40th percentile of weekly earnings for full-time salaried workers. Using 2013 data, this would equal $921 per week (or $47,892 per year), or approximately $970 per week (or $50,440 per year) in 2016.

• Increase the total annual compensation requirement needed to qualify for the FLSA’s “Highly Compensated Employee” test from $100,000 to $122,148. The HCE test was created back in 2004 as a way of exempting highly paid employees from the FLSA’s overtime requirements, if they customarily and regularly performed at least one of the exempt duties or responsibilities of an executive, administrative, or professional employee identified in the standard exemption tests.

• Establish a mechanism for automatically updating the salary and compensation levels going forward.                                                                                                                                           

Additionally, while the proposed rule does not advise specific regulatory changes to the duties tests, the USDOL is seeking comments on whether the current duties tests are “working as intended to screen out employees who are not bona fide ‘white collar’ exempt employees.” The USDOL is also seeking comment on whether to allow nondiscretionary bonuses tied to productivity and profitability to satisfy a portion of the salary test requirement.

While business groups and advocates examine and dissect the proposed rule in the weeks and months to come, employers should take this opportunity to review their exempt and non-exempt classifications and consider how the proposed rule may impact their business in the near future, in terms of budgeting, employee relations, and employee retention. Employers should also remain cognizant of applicable state wage and hour laws, which are often more employee-friendly than the FLSA. 

For more information on how this development may impact your business, please contact:

• Michael S. Katzen (609.986.1319; [email protected])
• Caroline J. Berdzik (609.986.1314; [email protected])
• Or another member of the Goldberg Segalla Employment and Labor Practice Group.