For the first time in many years, the United States Department of Labor will make significant revisions to its rules regarding the “white-collar” overtime exemption for executive, administrative, and professional employees. These rules determine who must be paid for overtime work under federal law.
Under the Fair Labor Standards Act, covered employers must pay overtime to employees who work over 40 hours per week unless they meet one of the exemptions under the FLSA’s rules. The exemptions for executive, administrative, and professional employees turn on a combination of factors involving their pay and duties.
The pay test requires first that the employee be paid a salary as opposed to being paid by the hour. It also requires that an employee be paid at least $455 per week. In addition, it identifies highly compensated executives, those paid above $100,000 per year, as exempt. The duties test requires that employees perform administrative, executive level, or professional work that includes matters of significance, the independent exercise of judgment, and supervisory duties, among other things.
The proposed new regulations are notable for the following five things:
- The minimum salary triggering exemption would be raised to $970 per week;
- The salary level for highly compensated executives would be raised to $122,148 annually;
- The salary levels would be automatically adjusted on an annual basis;
- No changes are contemplated for the duties test; and
- If adopted, the changes could affect as many as 11 million employees.
One interesting feature of the DOL’s approach is the failure to propose changes to the duties test. This aspect of the rules can cause the white collar exemption to be lost even if the employee is paid above the minimum salary. Rather than propose changes, the DOL is asking for comments from employers on the matter of whether the existing duties test works as intended to ensure that employees who are not functioning in exempt capacities are not excluded from overtime compensation.
Once the proposed rule is published in the Federal Register, there will be a 60-day comment period, followed by a 30-day period for replies to the comments. Presumably, the new rules will go into effect in early 2016.
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