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President Obama and The DOL Announce Proposal to Extend Overtime Pay to Five Million More Workers

President Obama and the U.S. Department of Labor (DOL) have announced a proposal that would result in nearly five million additional white-collar workers qualifying for overtime pay. The proposal would raise the current salary level that executive, administrative, and professional employees must receive in order to qualify as "exempt" from the overtime requirements of federal law from $23,660 annually, to $50,440 annually for 2016.

Under current DOL regulations, most white collar employees – executives (managers), administrative employees, and professionals – are exempt from the overtime rules and need not be paid overtime for hours worked over 40 in a workweek if they satisfy two conditions.  First, they must perform "exempt" duties as defined by the DOL regulations. Second, they must be paid a guaranteed salary of at least $455 per week, or about $23,660 annually.

The new proposal is projected to raise the salary level to qualify for these white collar exemptions to $970 per week in 2016, or about $50,440 annually. This proposed salary level is set at the 40th percentile of weekly earnings for full-time salaried workers. The DOL stated that it chose this number because it represented “the most appropriate line of demarcation between exempt and nonexempt employees."

In addition, the salary level for employees who qualify for the "highly compensated employee" exemption would rise from $100,000 per year to a projected $122,148 per year. This number represents the 90th percentile of weekly earnings for full-time salaried workers.

Significantly, however, the DOL's new proposal does not lock in these new salary levels. Rather, the DOL contemplates that the salary levels will rise over time, either because they will be indexed to the Consumer Price Index (a measure of inflation) or pegged to the 40th and 90th percentiles of earnings for full-time salaried workers, respectively. The DOL apparently intends to seek comments on which method is the most appropriate.

Bear in mind – this proposal is not the law yet.  The DOL still has to officially publish the new proposal in the Federal Register, and provide the public with an opportunity to review and comment. The DOL is also apparently seeking comment on possible changes to the "duties" portion of the white collar exemption requirements, but the Department has not articulated what these possible changes are. Regardless, none of these changes to either the salary levels or the "duties" test for exempt employees will take effect until the period for comment has passed and the DOL has considered the submitted comments – a process that will likely take several months, at least.

© 2019 Varnum LLP

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About this Author

Elizabeth Wells Skaggs, labor and employment attorney, Varnum
Partner

Beth is a partner in the labor and employment practice group, focusing employment issues and litigation. She has counseled business clients on a variety of matters affecting the workplace, including effective employee handbooks and policies, disciplinary and dispute resolution procedures, discrimination issues, disability accommodation, wage-hour matters, family medical leave, harassment prevention and litigation avoidance.  When litigation is unavoidable, Beth has significant experience representing employers under the numerous state and federal statutes that govern the...

616/336-6620
Stephanie R. Setterington, labor and employment attorney, Varnum
Partner

Stephanie advises employers on a wide variety of labor and employment matters, with an emphasis on employment litigation defense, and the identification and development of best practices in the area of human resources. She has worked extensively as labor and employment counsel for publicly-traded and privately-held companies that vary from single-site businesses to multi-state or global entities. She works with each client to ensure compliance with labor and employment-related legal requirements, develop effective human resource operations, and achieve the successful resolution of employment-related disputes.

Stephanie defends employers in state and federal courts, and before state and administrative agencies. She also assists unionized employers with contract and grievance administration issues. Her experience includes defending clients in grievance arbitrations, as well as in National Labor Relations Board proceedings at the trial and appellate levels.

616/336-6466
Joseph Vogan, labor and employment lawyer, Varnum
Partner

Joe Vogan has litigation experience in all areas of employment law, including wrongful discharge, the Elliott-Larsen Civil Rights Act, Title VII, Age Discrimination in Employment Act (ADEA), retiree insurance, Fair Labor Standards Act (FLSA), Americans with Disabilities Act (ADA), Family Medical Leave Act (FMLA), and the Whistleblower's Protection Act. 

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