Client Alerts

Department of Labor Proposes Changes to Overtime Regulations: Will Your Employees Remain Exempt?

By: Mark D. Katz

About: Employment & Labor, Employment & Labor Litigation

On June 30, 2015, the Department of Labor responded to President Obama’s direction to update key components of the “white collar” exemption to federal overtime requirements. Although no final regulations have yet been adopted, the proposed changes have been published in the Federal Register and are now subject to comments. The Department of Labor will consider comments and possibly make amendments before issuing any final regulations.

Changes under the new proposed regulations

Under Section 13(a)(1) of the Fair Labor Standards Act (FLSA), executive, administrative, and professional employees are exempt from the overtime requirements established by the FLSA  if they pass a three-part test. The components of that test include the duties test, the salaried basis test, and the minimum salary test. The Department of Labor’s proposal only modifies the minimum salary component of the “white collar” exemption.

Prior to the Department of Labor’s proposal, the minimum salary to meet the exemption requirement was $455 per week, or $23,660 annually, a standard that has been in effect since 2004. Under the recent proposal, the minimum salary rises to $970 per week, or $50,440 per year. Additionally, there is a provision tying the minimum salary figure to annual inflation. The Department of Labor estimates that this change will serve to automatically render approximately 25% of the workforce (4.6 million individuals) currently classified as exempt as overtime eligible.

The Department of Labor’s proposal makes no specific recommendations regarding the duties component of the exemption test. Instead, the proposal invites comments regarding suggested changes to the duties test and inquires as to whether a minimum amount of time should be established in the regulations to determine what constitutes an employee’s primary duty. Further, the proposal requests comments on whether the concept of “concurrent duties” should be continued. Under the current regulation, employees can perform both exempt and non-exempt duties at the same time.

Next steps and how employers can prepare

Presently, there is a sixty-day period for submissions of comments to the Department for its consideration. The Department will then review and analyze the comments prior to issuing its final regulations. This process tends to take a considerable amount of time and, as a result, final regulations are not anticipated before 2016.

In the meantime, while the increased minimum salary to maintain the exemption is only a proposal, employers should survey their workforce and determine how many employees with salaries under the proposed amount are presently classified as exempt. Once that is completed, employers may want to consider devising a “game plan,” assuming that the proposed amount becomes part of the final regulations and the duties test is not significantly modified. Employers should note carefully that meeting the $970 per week salary requirement is not a guarantee that the position will be recognized as exempt, however, failure to meet this amount would automatically exclude it.

If you have any questions or would like additional information, please contact a member of the Employment & Labor Practice at Ulmer & Berne LLP.