In June 2015, the United States Department of Labor’s Wage and Hour Division (DOL) issued a proposed rule that would update and revise overtime regulations under the Fair Labor Standards Act (FLSA).
According to the proposed regulation, it is designed to update the salary level to ensure that the FLSA’s intended overtime protections are fully implemented, and to simplify the identification of nonexempt employees, in order to make the exemptions easier for employers and employees to understand.
The FLSA guarantees a minimum wage and overtime pay at a rate not less than one and one-half times the employee’s regular rate for hours worked over forty (40) in a work week. The FLSA provides a number of exemptions, including the “EAP” or “white collar” exemption. This exemption applies to executive, administrative, professional, outside sales, and computer employees.
To be considered exempt, employees must be paid on a salary basis at not less than a specified amount and meet certain minimum tests related to their primary job duties. The current salary level required for the exemption, last updated in 2004, is $455 per week or $23,660 per year for a full time employee. This exemption means that employers are required to pay overtime, at the rate specified in the FLSA, to “white collar” salaried workers making less than $23,660 per year, but those making more than $23,660 per year are not required to be paid overtime pay.
At the center of the proposed regulation is an overhaul of the current salary level for which the “white collar” worker exemption is determined. The proposed regulation aims to more than double the current salary level from $23,660 per-year to $50,440 per year for a full time employee, which means all “white collar” workers, formerly exempt because they made over $23,660 per year, are overtime eligible if they make less than $50,440 per year. The DOL estimates that the new salary level will make at least five (5) million more Americans eligible for overtime pay.
In addition to doubling the current salary level, the regulation proposes an annual upward adjustment of the salary threshold to account for inflation. This adjustment would automatically update based on U.S. income levels, preventing the level from becoming outdated with the passage of time between rulemakings.
The period for public comment on the proposed rules closed in September and it was originally anticipated the regulations were expected in early 2016. Recently, the Solicitor of Labor, Patricia Smith, was quoted as saying the regulations would not be issued until “late 2016.”
Nevertheless, Employers should be proactive in response to the proposed overhaul of the “white collar” workers’ overtime exemption. The following are steps you can take now:
1. Review current salaries for all exempt employees.
2. Based on your company’s labor budget, determine which employees’ salaries you can raise to retain exempt status and which you cannot.
3. Analyze how many hours exempt employees currently work and how much it would cost to convert them to an hourly figure.
4. Decide whether you will lower the hourly rate so that total earnings remain the same.
5. Keep in mind the repercussions of lowering the hourly rate, such as employee morale.
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The attorneys of Critchfield, Critchfield & Johnston, Ltd. have prepared the content of this Client Alert for informational purposes only and not to provide legal advice. This is a communication providing public information about the Firm’s availability for professional employment. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. You should not act upon this information without seeking professional counsel.