Important Wage & Hour Update
Notice of Proposed Rulemaking for new Overtime Requirements
On March 13th, 2014 the White House’s Office of the Press Secretary released the Fact Sheet: Opportunity for All: Rewarding Hard Work by Strengthening Overtime Protections. As an excerpt from the fact sheet states, “The overtime and minimum wage rules are set in the Fair Labor Standards Act, originally passed by Congress in 1938, and apply broadly to private-sector workers. However, there are some exceptions to these rules, which the Department of Labor has the authority to define through regulation. One of the most commonly used exemptions is for “executive, administrative and professional” employees, the so-called “white collar” exemption.” A Presidential Memorandum was signed in 2014 instructing the Secretary of Labor to update regulations regarding who qualifies for overtime protection.
After more than 15 months of waiting, the 295 page Notice of Proposed Rulemaking (“NPRM”) was released on June 30, 2015. The NPRM is just the proposed regulations and are subject to a 60 day public comment period that will end on September 4th, 2015. This public comment period allows for all to comment with any dissatisfactions or concerns that they may have. The results of this comment period are then to be taken into consideration before the final rule is published. The comment period and subsequent review is expected to take between 6-8 months; thus, a final rule is not expected until 2016. To voice your opinions and concerns you may go to: http://www.regulations.gov/#!docketDetail;D=WHD-2015-0001.
The Proposed Changes
The NPRM as stated is 295 pages long, so here is a brief summary of what you need to know:
- The current salary threshold for the executive, administrative, and professional exemptions is $455 a week ($23,660 a year). The DOL proposes to establish the minimum qualifying weekly salary commensurate with the 40th percentile of weekly earnings for all full-time salaried employees in the United States. This would mean that the minimum weekly salary for the executive, administrative and professional exemptions will increase to $921 per week, or $47,892 annually. However, if the rule is not in effect until 2016, those numbers based on the 40th percentile will be $970 a week, or $50,440 annually.
- The proposed Rule also increases the minimum annual compensation for the highly-compensated employee exemption from $100,000 to $122,148, which is based on the 90th percentile of salaried workers’ weekly earnings.
- For the first time since the Fair Labor Standards Act was passed in 1938, the DOL proposes to automatically increase the minimum weekly salary requirement each year based on data from the Bureau of Labor Statistics. The Department, however, has not chosen between the two different indexing methods that it has studied.
- Keeping the levels chained to the 40th and 90th percentiles of earnings.
- Adjusting the amounts based on changes in inflation by tying them to the Consumer Price Index.
- There had been talk of changing the “duties test” for the executive, administrative, and professional exemptions; however, at this time there is nothing proposed regarding the duties test in the NPRM. Rather the DOL is only seeking public comments on the issue, which means that there may be revisions in the future.
Why the Change?
The last time the rule for the weekly salary that must be paid to an employee in order for the employee to be eligible for the executive, administrative and professional FLSA overtime exemptions were updated was in 2004. The minimum annual salary level for these exempt classifications under the 2004 regulations is $23,660, which is now below the poverty line for a family of four. By changing the exemption qualifications there will be a dramatic increase in the number of salaried employees who are entitled to overtime pay. It is estimated that these proposed changes will qualify approximately 4.6 million more employees nationally for overtime if the proposed rule is adopted.
What Comes Next?
By possibly changing the rules as to who qualifies as exempt vs. non-exempt from overtime, in regards to the income threshold for salary exempt status being raised; many employers are sure to be exposed to further FLSA cases. Now is the time to review your employee’s exemption classifications and to prepare to look into your compensation plans for your exempt employees, especially those who are salaried exempt making less than $970 a week.
We urge you to review the following:
DOL Press Release on the NPRM at http://www.dol.gov/whd/overtime/NPRM2015/
The Wage and Hour Fact Sheet at http://www.dol.gov/whd/overtime/NPRM2015/factsheet.htm
The FAQ’s regarding the Overtime NPRM at http://www.dol.gov/whd/overtime/NPRM2015/faq.htm
As always, HR Strategies is here to answer any questions or concerns that you have regarding the NPRM or other aspects of the FLSA and Wage & Hour. You may contact us at 770-339-0000.