The proposed rules allow more workers to obtain the rights

On July 6, 2015, the Department of Labor (“DOL”) proposed new regulations that would significantly raise the salary requirements for managers, administrative, professional, and information technology employees (“white collar workers”) to be considered “exempt” from the federal wage and salary requirements. Fair Labor Standards Act (“FLSA”). As a result, many employees will lose exempt status and become eligible for overtime.

Under current law, the white-collar exception applies only to employees who meet each of three conditions: 1) the employee is paid a fixed salary that cannot be reduced based on the quality or quantity of the employee’s work; 2) the employee’s compensation meets a specified minimum amount; and 3) the employee’s job duties consist primarily of managerial, administrative, or professional duties as defined in DOL regulations.

The proposed regulatory update is intended to ensure that FLSA overtime protections are implemented as Congress intended and to simplify the identification of employees who meet the exemption requirements. Employees who do not meet the salary and compensation thresholds will not be exempt from overtime, regardless of their responsibilities.

The Department of Labor issued the following statement regarding the new rule and its intended effects:

Today, the Department of Labor announced a proposed rule that would extend overtime protections to nearly 5 million white-collar workers within the first year of implementation. The failure to update the overtime rules left in place an exception to overtime eligibility originally intended for highly compensated managerial, administrative, and professional workers that now applies to workers earning just $23,660 a year. For example, a grocery store manager, a fast food assistant manager, or some office workers could be expected to work 50 or 60 hours a week or more, earning less than the poverty level for a family of four, and not receive a penny for overtime. Today’s proposed rule is a critical first step toward ensuring that hard-working Americans are paid fairly and have a chance to advance.

Key provisions

The key provisions of the proposed rule are as follows:

1. Raising the standard salary threshold for employees exempt from the obligation to report income.

Under current law, the salary threshold for exempt white-collar workers is a minimum wage of $455 per week ($23,660 per year for a full-time employee). The proposed rules would raise the salary threshold to 40t percentile of weekly earnings for salaried employees, which are expected to be $50,440 per year in 2016. Therefore, regardless of an employee’s responsibilities, if an employee does not earn $50,440 per year, he or she is not exempt from overtime pay.

2. Increasing the total annual salary required for highly compensated employees to obtain exemption.

Under current law, the annual salary threshold for highly compensated employees to be considered exempt is $100,000. The proposed rules would increase that to $90,000.t percentile of salaried employee earnings, which is $122,148.

3. Establishing a mechanism for automatic updating of wage and compensation levels in the future.

The DOL is proposing to automatically update the standard salary and highly compensated total annual executive compensation requirements to ensure that the test for exempt status remains meaningful and relevant. The DOL has updated the salary level requirements only seven times since 1938, most recently in 2004.

Other Potential Policy and Commentary Updates

The DOL has not proposed any changes to the current duties test; however, it requests suggestions for additional examples of activities and comments on the current requirements. The DOL also requests comments on the possibility of including nondiscretionary bonuses to meet part of the standard wage requirement.

Interested parties should submit written comments on the proposed rule by September 4, 2015, identified by Regulatory Information Number (RIN) 1235-AA11, by one of the following methods: (1) www.regulations.gov or (2) by mail to Mary Zeigler, Director of the Division of Regulations, Legislation, and Interpretation, Wage and Hour Division, U.S. Department of Labor, Room S-3502, 200 Constitution Avenue NW, Washington, DC 20210. Only comments received during the comment period will be considered part of the rulemaking record. Please note that comments received will become a matter of public record.

Brooks Pierce Summer Associate Ben Charlton contributed to this client alert.