DOL Issues Proposed Rule on Overtime Requirements

Jul 12, 2015
2 min read

On June 30, 2015 the Department of Labor (DOL) announced a proposed rule to update the regulations governing the white collar employee and highly compensated employee exemptions to the minimum wage and overtime pay protections under the Fair Labor Standards Act (FLSA).

Under FLSA regulations, for the white collar exemption to apply to an employee:

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 (“salary basis test”);
The amount of salary paid must meet a minimum specified amount (“salary level test”); and
The employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations (“duties test”).

The proposed rule seeks to update the salary level requirement set forth in bullet (2). Currently, the salary threshold for an employee to be exempt from the FLSA is $455 a week ($23,660 a year). That figure was last updated in 2004. Under the proposed rule, the salary level would be set at the 40th percentile of earnings for full-time salaried workers ($921 per week or $47,892 a year, in 2013). For 2016, this this number is projected to be $970 per week ($50,440 a year).

FLSA regulations also provide an exemption for certain highly compensated employees who:

Are paid total annual compensation of at least $100,000 (which must include at least $455 per week paid on a salary or fee basis); and
Customarily and regularly perform at least one of the exempt duties or responsibilities of an executive, administrative, or professional employee.

Under the proposed rule the highly-compensated salary threshold would be set at the 90th percentile of earnings for full-time salaried workers and increased to $122,148 a year.

Lastly, the proposed rule establishes a mechanism to update the salary and compensation threshold for the above tests on an annual basis using either a fixed percentile of wages or the Consumer Price Index for All Urban Consumers (CPI-U).

While not proposing any specific changes to the duties test, the proposed rule discusses the current duties test and solicits comments on whether the tests are working as intended to screen out employees who are not bona fide exempt employees. The proposed rule also invites comments as to whether to allow nondiscretionary bonuses, such as certain production or performance bonuses, or bonuses tied to profitability, to satisfy a portion of the salary threshold requirement.

The proposed rule will have a 60-day comment period upon publication in the Federal Register.