Show Me the Money: DOL Proposed Regulations Dramatically Expand Overtime Eligibility for White Collar Employees

After months of talk and speculation about new overtime regulations, on June 30, 2015, the United States Department of Labor (“DOL”) issued its proposed rule and request for comments on its “white collar exemption” regulations.  The so-called “white collar exemptions” – the executive, administrative and professional employees exemptions – were last revised in August 2004.  Assuming the regulations are revised in accordance with the DOL’s proposal, the DOL estimates that 4.6 million workers exempt under the current regulations would become entitled to overtime under the FLSA.  In addition, an estimated 36,000 employees who were previously considered “highly compensated” employees under the FLSA would no longer satisfy that definition.  

Under the current regulations, for an employee to be considered exempt from the FLSA, the employee must earn a minimum weekly salary of $455 (the equivalent of $23,660 annually for a full-time employee). (Currently, employers in New York and California must meet higher thresholds of $656.25 per week in New York and a weekly salary that is at least twice the minimum wage for full-time employment in California.) With the proposed regulations, the salary requirement for an exempt employee would be increased to $921 per week (the equivalent of $47,892 annually for a full-time employee). (See DOL’s Overtime NPRM FAQs)   The DOL is proposing that the salary requirement should be set at the 40th percentile of weekly earnings for full-time salary workers, which would equate to the $921 weekly salary using 2013 data, and would increase as the workforce weekly salary increases.  In other words, the minimum salary requirement would increase without revising the regulations on an ongoing basis. The DOL predicts that the 2016 salary level would be about $970 per week, or $50,440 per year.

In addition, the DOL proposes increasing the salary for highly compensated employees from $100,000 to $122,148 per year.  The DOL applied the 90th percentile of earnings for full-time salaried workers to come to the $122,148 figure, which would also automatically increase as salaries’ increase.

The proposed rules, however, punt on one critical issue – whether to modify the “duties tests.”   The duties test is how the DOL and employers grappling with overtime issues ascertain whether the employees’ primary responsibility satisfies a recognized exemption.  As drafted, the DOL’s proposal would not impact the specific requirements of the exemptions and would expand overtime eligibility simply by changing the salary requirements.  However, the DOL has indicated that it is seeking comments on how, if at all, to modify the duties test.  Some changes the DOL’s proposed rule suggest it is considering requiring overtime ineligible employees to spend a specified amount of time performing their primary duty (e.g., a 50 percent primary duty requirement as required under California state law), limiting the amount of nonexempt work an overtime-ineligible employee may perform, and adding to the regulations additional examples illustrating how the exemption may apply to particular occupations. The sixty-day comment period will begin as soon as the proposed rules are printed in the Federal Register and employers will have the opportunity to provide comments on possible changes to the duties tests as well as the proposed salary levels. Between the comment period and the DOL needing to finalize the rules in light of the comments, employers will not see any new regulations become effective until 2016 but expanded overtime is definitely on its way.