On July 6, 2015, the Department of Labor (DOL) published its highly anticipated proposals for updated overtime rules.
The updated overtime rules would significantly modify tests that determine whether executive, administrative, and professional employees (frequently referred to as “white collar workers”) will be entitled to minimum wage and overtime pay protections under the Fair Labor Standards Act (FLSA). Under the current rules, employees generally must meet certain prerequisites regarding their job duties and be paid on a salary basis no less than $455 per week ($23,660 annually).
President Barack Obama signed a Presidential Memorandum in 2014, directing the Department of Labor to update the overtime regulations which define which white-collar workers would be exempt from the requirement for overtime pay for hours worked over 40 in a workweek. In his directive, the President highlighted that the thresholds of the salary test have failed to keep pace with inflation, only being updated twice in the last 40 years. Accordingly, the President argued that many lower-paid, salaried workers should not be exempt from overtime wage requirements.
The Updated Overtime Rules
According to a White House press statement, the proposed changes from the updated overtime rules would extend overtime protections to nearly five million white-collar workers within the first year of its implementation. If the proposed changes become final, employers of all sizes, industries and geographic locations will be impacted.
As proposed in the updated overtime rules, the DOL’s changes to the salary test rules would:
Set the standard salary level at the 40th percentile of weekly earnings for full-time salaried workers ($921 per week, or $47,892 annually);
Increase the total annual compensation requirement needed to exempt highly compensated employees (HCEs) to the annualized value of the 90th percentile of weekly earnings of full-time salaried workers ($122,148 annually); and
Establish a mechanism for automatically updating the salary and compensation levels going forward to ensure that they will continue to provide a useful and effective test for exemption.
Notably, the DOL did not address the requirements of the current “duties test” (being the second part of the exemption test), which is used to assess whether salaried workers earning more than the threshold salary test are exempt from overtime rules. However, the agency is soliciting suggestions for additional occupation examples as well as comments on the current requirements. Additionally, the DOL has requested comment on the possibility of including nondiscretionary bonuses to satisfy a portion of the standard salary requirement. So additional changes could be on the way.
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