At long last, on Tuesday, June 30, the Department of Labor released its Notice of Proposed Rulemaking seeking public comment on proposed changes to the Fair Labor Standards Act’s “white collar” overtime exemption regulations. The DOL’s proposal contained a few expected changes, along with a few surprises.
The Primary Proposed Change – Huge Increase in the Minimum Salary Requirement
Most significantly, the DOL proposes to more than double the minimum salary required for the FLSA’s white-collar exemptions from the current $455 to an amount equal to the 40th percentile of weekly earnings for all full-time salaried workers. The DOL projects that this minimum salary amount would be approximately $970 per week in 2016, when it expects to issue its final rule. The DOL also proposes to automatically update the minimum salary requirement each year based on the 40th percentile calculation or inflation, such that the minimum salary requirement would change (and likely increase) every year.
We expected the DOL to propose a significant increase to the minimum salary requirement, and the DOL did not disappoint. The DOL estimates that with the proposed increase in the minimum salary requirement, the number of salaried employees who qualify for the FLSA’s white-collar overtime exemptions would decrease by more than 50%. Employees who earn less than $50,440 annually and currently are classified as exempt would become non-exempt on the effective date of the final regulations, regardless of their job duties.
What About Changes to the Duties Tests?
The minimum salary requirement is only one half of the FLSA’s white-collar overtime exemption tests. To establish that an employee qualifies for the one of these exemptions, an employer typically must prove both that the employee meets the minimum salary requirement and that the employee’s job duties qualify for one of the exemption’s duties test.
Interestingly, the DOL did not make any specific proposals to change any of the exemptions’ duties tests. Instead, the DOL sought comments on specific issues related to the duties tests including:
- What, if any, changes should be made to the duties tests?
- Should employees be required to spend a minimum amount of time performing work that is their primary duty in order to qualify for exemption? If so, what should that minimum amount be?
- Should the Department look to the State of California’s law (requiring that 50% of an employee’s time be spent exclusively on work that is the employee’s primary duty) as a model? Is some other threshold that is less than 50% of an employee’s time worked a better indicator of the realities of the workplace today?
- Does the single standard duties test for each exemption category appropriately distinguish between exempt and nonexempt employees? Should the Department reconsider our decision to eliminate the long/short duties tests structure?
- Is the concurrent duties regulation for executive employees (allowing the performance of both exempt and nonexempt duties concurrently) working appropriately or does it need to be modified to avoid sweeping nonexempt employees into the exemption? Alternatively, should there be a limitation on the amount of nonexempt work? To what extent are exempt lower-level executive employees performing nonexempt work?
Some observers fear that with this unanticipated approach, the DOL will place sweeping changes to the duties tests in the final regulations, without ever having these changes subject to public notice and comment prior to their implementation. Should it do so, the DOL almost certainly will trigger legal challenges to the enforceability of such changes in the final regulations.
It is important to remember that these are only proposed regulations. The proposed regulations have not changed the existing law or regulations, and employers are not required to take any action now in response to proposed regulations. Final regulations likely would not take effect until late 2015 or 2016.
Employers and other members of the public will be able to submit comments to the DOL regarding the proposed regulations for a 60-day period after the proposals are formally published in the Federal Register.
We do not know what the final regulations will contain. However, the proposed regulations confirm that the DOL intends to make sweeping changes to the current regulatory requirements, limit the applicability of the FLSA white-collar exemptions, and make millions of currently exempt workers eligible for overtime compensation. Employers should begin considering the impact that the proposed changes would have on the status of their exempt workforce and determine whether affected exempt employees may be covered by another FLSA exemption. If not covered by another exemption, now is the time to start thinking about changes that may be required if/when the proposed changes become law.