The U.S. Department of Labor (DOL) has released a proposed update to a rule that governs overtime pay for salaried workers under the Fair Labor Standards Act (FLSA). The DOL is seeking to amend the "white collar" exemption that excludes certain executive, administrative, and professional employees from overtime protections. A worker's status as an exempt executive, administrator, or professional is based primarily on salary level and duties.
Under the current state of the law, any employee who is paid at least $455 ($23,660 annually) in salary per week and meets the duties of an executive, administrative, or professional employee is exempt from overtime pay (i.e., not entitled to overtime pay). The proposed changes would raise the salary threshold for overtime eligibility to $970 per week ($50,440 annually) in 2016. That means employees earning an annual salary of $50,440 or less would automatically be eligible for overtime pay regardless of their duties. Currently, employees whose salaries are less than $455 a week automatically qualify for overtime pay if they work more than 40 hours in a week – regardless of the nature of their job or the duties they perform (unless they qualify for another specific exemption). For individuals who earn a salary at or above the requisite level, they can be exempt from overtime pay based on a "duties test": whether the employee performs mostly executive, administrative, or professional duties. If so, under the "white-collar exemption," the employee is not entitled to earn overtime pay. The proposed rule does not change the "duties test." Thus, the existing duties test for exempt executive, administrative, and professional employees remains unchanged, only the salary threshold would be updated.
The DOL has also proposed implementing an automatic update to the salary level threshold, based on the consumer price index or a fixed percentage of wages (40th percentile of weekly earnings) for full-time salaried workers. This is likely a reaction to the fact that the current FLSA salary threshold has not changed in many years, and thus, has not kept up with the rate of inflation.
Workers covered by the Fair Labor Standards Act overtime provisions must be paid at least "time-and-a-half," for each hour of work worked beyond 40 hours per week. According to the DOL, raising the salary threshold serves two policy goals: reducing the detrimental effect of overwork on workers' health and well-being; and spreading employment by incentivizing employers to hire more employees rather than requiring existing employees to work longer hours.
This new proposed regulation, if implemented as law, would have a significant impact on the number of workers who are entitled to overtime pay. In other words, any salaried worker who is currently making between $24,000 and $50,000 per year (and whose duties render them executive, administrative, or professional exempt) would likely not be entitled to overtime pay under the current law, but would be entitled to overtime pay under the new proposed regulation regardless of their job duties. The DOL estimates that the proposed rule would extend overtime protections to an additional five (5) million workers within the first year of its implementation.
The Department of Labor, at the direction of the president, can propose new rules under the Fair Labor Standards Act. As part of the administrative process, the proposed rule will be published in the Federal Register, and the Department of Labor will hold a 60-day notice and comment period during which the public can submit comments. A final rule is not expected until 2016. In the meantime, employers should carefully evaluate the compensation and duties of their employees, how employees are treated for purposes of entitlement to overtime pay, and all pay and timekeeping policies and practices.