Monday, July 27, 2015

Proposed Amendments to FLSA Overtime Exemptions

Elaina Smiley
On June 30, the Department of Labor (DOL) issued proposed amendments to the Fair Labor Standards Act (FLSA) overtime exemption tests that will make more employees eligible for overtime pay.

Under the FLSA, employers must pay workers time-and-a-half wages for time worked in excess of 40 hours in a work week. Currently, workers are exempt from the overtime pay requirement if their job duties fit the FLSA’s definitions of executive, administrative, and professional categories, and the employer pays a minimum salary of $455 per week or $23,660 per year. The DOL amendments propose to change the salary requirement to $921 per week, but the DOL footnotes that by the time of publication of the final rule the salary requirements will likely be $970 per week or $50,440 annually.

The FLSA also exempts “highly compensated employees” from overtime pay. To qualify as a “highly compensated employee,” employees perform non-manual duties of an executive, administrative or professional worker and are paid at least $100,000 annually. The DOL’s proposed amendments would increase the total annual compensation requirement to $122,148 per year.

The DOL also proposes to establish a method for automatically updating the salary levels on an annual basis based on economic considerations.

The DOL did not make any specific proposals to modify the standard duties tests for the exemption categories, but is seeking comments on whether the tests are working as intended and whether the tests should be modified. Specifically, the DOL requests comments on whether it should adopt a test similar to California’s which requires 50% of an exempt employee’s time to be spent performing exempt duties. The DOL expressed concern that the current test may allow employers to classify certain employees as exempt even though they spend a significant amount of their time performing nonexempt tasks. In particular, the DOL is concerned about lower level managers in the retail and restaurant industries who are currently exempt from overtime pay requirements because they supervise two or more full time employees. Despite their supervisory responsibilities, these managers perform a substantial amount of non-exempt work such as running cash resisters, stocking shelves, cleaning and filling in for non-exempt workers.

There is a 60-day comment period for the proposed regulations. The DOL has not said when it will issue the final rule, but it will most likely not take effect until mid-2016. Employers should start reviewing their employee classifications now to determine whether they will need to reclassify employees or increase salary levels.

For more information contact Elaina Smiley.

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