New Overtime Rules Proposed by U.S. Department of Labor

On June 30, 2015 the U.S. Department of Labor’s Wage & Hour Division announced their long-awaited proposal to amend the “white collar” exemptions for executive, administrative, and professional employees under the Fair Labor Standards Act (“FLSA”).

As background, the FLSA requires employers to pay most employees one and one half times their regular hourly rate (a/k/a “time and a half”) for any hours worked over 40 in a work week. However, the FLSA “exempts” certain employees from this overtime requirement if the employees are paid a minimum weekly amount on a “salary basis” and perform certain “exempt” duties as part of their work.  The most widely claimed “exemptions” from overtime are for employees performing “executive,” “administrative” or “professional” duties (sometimes referred to as “white collar” exemptions).

The proposed new rule contains three major changes to these exemptions:

  1. The proposed rule more than doubles the minimum required weekly salary employers must pay these employees in order to claim an exemption from the FLSA’s overtime requirement. Currently, employers need only pay such employees a minimum of $455 per week (the equivalent of $23,660 per year).  At the time the rule goes into effect in 2016, it is projected that the proposed rule would require employers to pay employees for whom an exemption is claimed no less than $970 per week (the equivalent of $50,440 per year).
  1. The proposed rule also increases the total annual compensation an employer must pay certain employees to qualify for the “highly compensated” employee overtime exemption. The current annual compensation requirement is $100,000.  Under the proposed rule, “highly compensated” employees would have to be paid $122,148 to qualify for the exemption.
  1. The proposed rule also provides for automatic adjustments to the salary standards for both full-time salaried workers and highly-compensated employees. Beginning in 2016, the Department of Labor is considering adjusting the minimum required weekly salary for “white collar” employees by either indexing that amount to the 40th percentile of weekly earnings for full-time salaried workers or tying increases to the Consumer Price Index.  The minimum annual salary employers would be required to pay “highly-compensated” employees would be indexed to the annualized value of the 90th percentile of weekly earnings of full-time salaried workers
  1. The Department of Labor has also “invited comments” on whether to change the current duties tests for executive, administrative and professional employees; strongly suggesting that the Department is seeking to change those current requirements as well. This change is potentially significant, and may further limit the availability of these exemptions.

Initial estimates indicate that a salary increase to $50,400 per year would impact 5-10 million workers across a number of industries; but will likely have a disproportionately large impact in the retail and hospitality industries.

The proposed Rules must still undergo a 60-day public-comment period before they can be finalized, but the changes are expected to go into effect in 2016.  President Obama is expected to discuss the proposal in more detail at an event scheduled for this week.

With a 2016 implementation date looming, employers will need to start planning well in advance to budget for any required salary increases and/or increased overtime costs.

The St. Louis employment attorneys at McMahon Berger have been representing employers across the country in labor and employment matters, including those relating to the FLSA, for almost sixty years, and are available to discuss these issues and others.  As always, the foregoing is for informational purposes only and does not constitute legal advice regarding any particular situation as every situation must be evaluated on its own facts. The choice of a lawyer is an important decision and should not be based solely on advertisements.

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