A Quick Note to Employers About New Changes Coming to Fair Labor Standards Act’s Overtime Rules

Every Employer asks the questions whether or not they truly owe overtime pay to their employees; moreover, Employers are not often certain whether or not specific employees are exempt or non-exempt employees. The US Department of Labor (DOL) announced the highly anticipated proposed revisions to the Fair Labor Standards Act’s (FLSA’s) overtime exemptions, and it is time companies become aware and prepare for the changes when they become officially implemented (it is slated that the changes potentially will be in full force and effect by Summer 2016).

The proposed revisions increase the minimum salary needed to qualify for the FLSA’s standard white collar exemptions to be equal to the 40th percentile of weekly earnings for full-time salaried employees (projected to be $50,440 annually or $970 a week in 2016). The DOL also proposes to increase the minimum total annual compensation required to qualify for the highly compensated exemption to be equal to the 90th percentile of earnings for full- time salaried employees ($122,148 per year as of 2013). Additionally, the DOL proposes to adjust (and likely increase) these minimum salary and compensation levels on an annual basis. The proposed rule does not include changes to the FLSA’s duties test , but the DOL nevertheless seeks comments on whether, in light of its compensation proposals, changes to the duties test are necessary.

The FLSA’s white-collar exemptions exclude certain executive, administrative, and professional employees from federal minimum wage and overtime requirements. Presently, to qualify for one of these exemptions, employees generally must (1) be salaried, meaning that they are paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (“salary basis test”); (2) be paid more than a specified salary threshold, currently $455 per week or $23,660 annually (the “salary level test”); and (3) primarily perform executive, administrative, or professional duties as provided in the DOL’s regulations (the “duties test”). – See the FLSA for further details. 

Additionally, certain highly compensated employees are exempt from the FLSA’s overtime pay requirements if they are paid total annual compensation of at least $100,000, receive at least $455 per week paid on a salary or fee basis, perform office or non-manual work, and customarily and regularly perform at least one of the exempt duties or responsibilities of an executive, administrative, or professional employee. In 2013, this amount was $921 per week, or $47,892 annually. The DOL projects that in 2016, when the rule will likely take effect; the 40th percentile will be about $970 per week, or $50,440 annually.

To recap, the main changes are:

Increase the minimum salary amount for exempt executive, administrative, professional and computer employees from $455/week or $23,660 annually (current amount) to $921/week or $47,892 annually. This would more than double the minimum salary amount.

Increase the salary amount for “highly compensated employees” from $100,000 annually (current amount) to $122,148 annually. Ultimately, there will be new minimum salary levels to qualify for the exemption standard salary-level test. The changes will impact each type of employee (white collar or not) and employers better be ready to adjust employee hours and pay to cooperate fully with the changes.