New Proposed Rules on Overtime

The President recently announced an “expansion” of the coverage of overtime rules to employees.  In that regard, the U.S. Department of Labor’s Wage and Hour Division (the “DOL”) issued proposed updated regulations governing the payment of minimum wage and overtime pay to “white collar workers” on July 6, 2015 (29 CFR 541).

Since 1940, the Department’s regulations have generally required each of three tests to be met for one of the Fair Labor Standard Act’s (“FSLA”) white collar exemptions to apply: (1) the employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed; (2) the amount of salary paid must meet a minimum specified amount; and (3) the employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations.  Last updated in 2004, the regulations presently provide for a “minimum specified amount” for exemption of $455 per week ($23,660 per year).

The DOL proposes to:

  • Set the standard salary level at the 40th percentile of weekly earnings for full-time salaried workers ($921 per week, or $47,892 annually);
  • Increase the total annual compensation requirement needed to exempt highly compensated employees (HCEs) to the annualized value of the 90th percentile of weekly earnings of full-time salaried workers ($122,148 annually); and
  • Establish a mechanism for automatically updating the salary and compensation levels going forward to ensure that they will continue to provide a useful and effective test for exemption.

As proposed, this would raise the salary threshold from present levels to about $970 a week ($50,440 a year) in 2016.  The proposed rule would automatically update the standard salary and HCE total annual compensation requirements.  The DOL estimates that the higher salary level would extend increased minimum wage and overtime eligibility to approximately five million employees.

In addition, the Department discusses the current duties test and solicits suggestions for additional occupation examples and requests comments on the current requirements.  While the DOL is not proposing specific regulatory changes at this time, it is seeking additional information on the duties tests for consideration in the Final Rule. Specifically, it seeks comments on the following issues:

  • 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 percent of an employee’s time be employee’s primary duty) as a model?  Is some other threshold that is less than 50 percent 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) work 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?

Similarly, the Department seeks comment on the possibility of including nondiscretionary bonuses to satisfy a portion of the standard salary requirement. The Department is not proposing specific regulatory changes on either of these issues.

Written comments to the proposed regulations are due to the DOL on or before September 4, 2015.

PK Law’s Employment and Labor attorneys have extensive experience in the application and interpretation of wage and hour laws for employers.  To contact an attorney in PK Law’s Worker Misclassification and Wage and Hour Law Group click here.  For additional information contact information@pklaw.com.

 

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