Legal Alerts

30 Jun 2015

White House Announces Big Changes to Overtime Rules

In recent years, wage and hour litigation has rapidly become one of the biggest liability risks to employers across the country. These matters are rarely covered by Employment Practices Liability Insurance (EPLI) coverage and, due to the fact that most claims are pursued as class actions, litigation often becomes a “save the company” proposition. Since even minor changes in the law spur increased litigation, significant changes− or even proposed changes− deserve immediate attention.

Today, the U.S. Department of Labor (DOL) unveiled a proposed rule that would broaden federal overtime pay regulations to cover nearly 5 million people and raise the minimum salary threshold required to qualify for the Fair Labor Standards Act’s “white collar” exemption to $50,440 per year in 2016.

The details and additional changes

The proposed regulations would change which executive, administrative, and professional employees (often referred to as “white collar workers”) are subject to the Fair Labor Standards Act’s (FLSA) minimum wage and overtime provisions. The White House Announces (white collar) exemptions currently apply only in circumstances where three tests are satisfied:

  1. 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;
  2. The amount of salary paid must meet a minimum threshold; and
  3. The employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations.

Under the DOL’s proposed regulations, the salary threshold that must be met to qualify as “exempt” under the FLSA would more than double, going from $23,660 per year to $47,892 ($921.00 / week)– a figure tied to the annualized value of the 40th percentile of weekly earnings for full-time salaried workers. As proposed, this would raise the salary threshold to $50,440 per year ($970.00 / week) in 2016.

Similarly, the new proposed regulations would increase the total annual compensation requirement for an employee to qualify as a FLSA exempt “highly compensated employee” from $100,000 to $122,148 ($2,349.00 / week). This threshold equates to the annualized value of the 90th percentile of weekly earnings for full-time salaried workers.

Moreover, the DOL’s proposed regulations seek comments on two alternative methodologies for automatically updating the standard salary and highly compensated employee requirements – (1) using a fixed percentile of wage earnings, or (2) using the CPI-U (the Consumer Price Index – All Urban Wage Earners).

The DOL’s notice of proposed rulemaking also seeks suggestions regarding additional prospective changes to the FLSA’s regulatory framework. Most notably, it seeks comments regarding potential changes to the “duties test” for meeting the FLSA’s white collar exemptions. It is anticipated that the DOL will seek to substantially narrow the scope of duties that fall within the scope of the white collar exemptions.

In particular, the DOL appears poised to adopt a standard akin to the requirement under California law that an exempt manager spend at least 50% of his or her time performing their primary managerial duties and not counting any time when nonexempt work is performed concurrently. If the California standard is adopted on a nationwide level, such a change would have a profound impact on how employers structure their workforces and result in substantial litigation over the exemption status of front-line managers, particularly in retail establishments.

Additionally, the DOL is considering changes in the technology sector regarding exemptions applicable to computer-related occupations. To that end, the DOL is seeking comments from stakeholders regarding additional positions / categories of positions and duties associated with such jobs that should be included as examples in its regulatory guidance regarding the application of the executive, administrative, and professional exemptions.

What you can do now

The DOL’s proposed rule will be open to the public once it is published in the Federal Register. Comments can be submitted electronically or via mail under Rule Identification Number (RIN) 1235-AA11 within sixty days after it is posted in the Federal Register. Instructions for the comments can be found here. Given the substantial impact these proposed rules would have on how employers structure their workforces, we strongly encourage you to offer your comments during the open period. Most importantly, however, we strongly encourage you to assess the impact of these regulations on your company’s operations and explore the options available to minimize your risk of potential litigation and/or liability upon their anticipated implementation this fall.

If you have any questions about how you and your company can best prepare for the implementation of the new white collar rules or any other wage and hour matter, please do not hesitate to contact R. Michael Lowenbaum, Robert S. Seigel, Corey L. Franklin, Karen E. Milner, David P. Frenzia, or Christopher M. Sanders.

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