Wait Is Over: The Proposed FLSA Overtime Changes Are Out!
For those (like me!) anxiously awaiting the Department of Labor’s (DOL) proposed overhaul of the exemptions to the Fair Labor Standards Act (FLSA), the wait is over. The proposed rule [pdf] is now available on the DOL’s website (although it has not yet been published in the Federal Register). According to the DOL’s calculations, the proposed rule would result in 4.6 million currently exempt workers becoming entitled to minimum wage and overtime protection under the FLSA, with annualized direct employer costs totaling around $250 million per year and an annualized transfer of income from employers to employees (in the form of higher earnings) of around $1.2 billion.
A quick recap: The FLSA requires employers to pay minimum wage and overtime pay (one and one‑half times the employee’s regular rate for hours worked over 40 in a workweek) to employees. However, the FLSA provides a number of exemptions from the minimum wage and overtime pay requirements. One set of exemptions referred to as the “white collar exemptions” provide that employees who are paid at least $455/week ($23,600/year) on a salary basis and whose primary duties consist of certain executive, administrative and/or professional duties, are exempt from the FLSA’s minimum wage and overtime requirements. The regulations were last updated in 2004.
Last March, President Obama directed the Secretary of Labor to update, modernize and simplify the FLSA’s current white collar exemption standards. Capping off a historic few weeks, President Obama announced that he will be unveiling the proposed changes in Wisconsin later this week.
As expected, the proposed rule would more than double the salary basis for employees to qualify for the administrative, executive, professional and computer exemptions—raising the salary basis from $455/week ($23,600/year) to an amount “equal to the 40th percentile of earnings for full-time salaried workers” ($921/week ($47,892/year) in 2013; currently projected to be $970/week ($50,440/year) in 2016). The proposed rule also raises the salary basis for the highly-compensated employee exemption. Previously, an employee who made at least $100,000 per year and performed at least one exempt duty would be exempt under the highly-compensated employee exemption. Under the proposed rule, an employee must now receive a total annual compensation at the “annualized value of the 90th percentile of weekly wages of all full-time salaried employees” ($122,148/year in 2013) to qualify under the exemption.
In addition, the proposed rule provides that the salary levels would automatically increase each year, “either by maintaining the levels at a fixed percentile of earnings or by updating the amounts based on changes in the [Consumer Price Index for All Urban Consumers].” The DOL is seeking comments regarding which methodology would be most appropriate. The rule change does not affect the exemption for outside sales employees, which remains the only white collar exemption that does not contain a salary basis component.
While the increase in the salary basis was expected, in a somewhat unexpected twist, the proposed rule does not contain any changes to the current “primary duties” tests. Instead, the DOL states that it is “considering revisions to the duties tests” and is thus soliciting comments on whether the current tests are working as expected, and whether a different test should be implemented. Among the possible revisions noted is a division of labor test similar to what is used in California (which would require exempt employees to spend 50% of their time performing exempt duties), or a rule that would otherwise limit the amount of non-exempt work an exempt employee could perform. Thus, it is possible the final rule could contain provisions modifying the current “primary duties” test in any number of ways—many of which would be costly to implement for employers, who have finally gotten used to the current “primary duties” test. Given that the DOL has specifically requested comments on the issue, it is imperative that employers voice their concerns and/or suggestions regarding changes to the “primary duties” test during the public comment period.
Finally, the DOL has requested comments from employers in the computer and information technology sectors as to whether changes should be made with respect to the types of positions and duties that should be included as examples of exempt positions/duties in computer-related fields.