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The U.S. Department of Labor (“DOL”) recently proposed substantial changes to the salary amounts for the FLSA’s white collar exemptions. This is the first proposed change since 2004. The DOL took this action in response to a March 2014 directive from President Obama to “modernize and streamline” the regulations for these white collar exemptions. In his directive, the President stated that because the existing regulations are “outdated,” “millions of Americans lack the protections of overtime and even the right to minimum wage.”
The DOL’s proposed changes:
- 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.
- Automatically increase both salary amounts on an annual basis. The DOL would provide at least 60 days notice of the annual increase amount. The amount of the increase would be determined by either using: (i) a fixed percentile of wage earnings for all full-time salaried workers, or (ii) changes in the Consumer Price Index for Urban Consumers (CPI-U).
The practical effect of these increases will be to reduce the number of employees who qualify as exempt and to increase the number of employees entitled to overtime compensation.
Right now, these are just proposals – the FLSA regulations have not been changed. The DOL has requested public comment on its proposed changes (among other topics) and the comment period is open until September 4, 2015. That being said, I do not expect that the DOL will be rolling back the salary amounts in its final rule, which will be issued sometime after September 4th. Now is a good time for companies to review their lists of exempt employees and determine which employees earn less than $921/week or $47,892 annually, or $122,148 if classified as a “highly compensated employee,” to be prepared to reclassify these employees as overtime eligible when the final rule goes into effect.
Interestingly, the DOL has not proposed any specific changes to the duties tests for the white collar exemptions, but it has asked for public comment on the tests, including whether the DOL should adopt California’s state law requirement that an employee must spend at least 50% of his/her time on exempt duties in order to qualify as exempt. The DOL’s request for comments on the duties tests means that its Final Rule may include changes to those tests that we have not seen before they are implemented.
The full text of the DOL’s proposed changes and explanation for its methodology can be accessed here.
Comments to the proposed rule may be submitted to the DOL by September 4, 2015 either in writing or electronically.
