On June 30, 2015 the Department of Labor issued its long-anticipated Notice of Proposed Rulemaking (NPR) updating the Fair Labor Standards Act (FLSA) regulations governing white-collar employees.
The FLSA requires that all non-exempt employees be paid time and a half their regular rate of pay for all hours worked over forty in a work week. The FLSA provides specific exemptions to this overtime requirement for executive, administrative, professional, outside sales and some computer employees. The two key components of the exemptions are that: 1. the employee must be paid on a salary basis of at least a minimum amount, and 2. the employee’s job must generally be comprised of exempt duties. Thus, we have traditionally referred to the “salary” and “duties” tests when discussing white collar exemptions. Both tests must generally be satisfied in order for an employee to be classified as exempt.
The minimum salary required under the “salary test” has been $455 per week, or $23,600 per year, for many years. Under the NPR, the minimum required salary will increase to the 40th percentile of weekly earnings for full-time salaried workers as reported by the Bureau of Labor Standards. This amount is currently approximately $921 per week or $47,892 per year, and it will increase to $970 per week or $50,440 per year in 2016. Since the minimum salary will now be tied to BLS data, employers should expect it to increase every year.
Under the former rules, employees making more than $100,000 per year were classified as “highly compensated,” and they qualified for the exemption regardless of their duties. Under the NPR, this amount will increase to a minimum of the 90th percentile of earnings of full-time salaried workers, which is currently approximately $122,148. Although many commentators expected the NPR to also propose modifications to the “duties” tests, and hoped that the DOL would offer us some clarity on this issue, it did not do so. There is still time for the NPR to be amended; however, it is not yet the law of the land. The NPR is subject to a public comment period of at least sixty days and will probably not become effective until 2016.
Employers should begin to plan for a significant increases in the amount of salary that they must pay to their exempt employees in order to maintain their exempt status or else convert them to hourly, nonexempt status. In some instances, it may make more sense to raise an employee’s salary above the minimum level rather than convert them to a non-exempt classification and pay them overtime. Either way, this NPR is going to become law in some form in the relatively near future, and it will require employers to make significant changes to the way that they classify and compensate many of their employees.