“Money can’t buy you happiness, but it can buy you a yacht big enough to pull up right alongside it.”
– David Lee Roth (Lead Singer – Van Halen)
The U.S. Department of Labor (“DOL”) just released proposed rules that will significantly increase the number of employees entitled to receive overtime pay under the Fair Labor Standards Act (“FLSA”). The highly anticipated changes will make an estimated 5 million currently “exempt” employees eligible for overtime pay for all hours worked over 40 in a workweek.
The major changes relate to the amount of salary required for the “executive, administrative, and professional” exemptions, and the amount of total annual pay required for the “highly compensated employee” exemption.
The proposed rule for the executive, administrative, and professional exemptions more than doubles the minimum salary level from its current level of $455 per week ($23,660 annualized) to approximately $921 per week ($47,892 annualized) in 2015, and $970 per week ($50,440 annualized) in 2016. The DOL has proposed automatically updating this salary amount so that it will increase without additional rulemaking.
The proposed rule also raises the total annual compensation required to qualify for the highly-compensated employee exemption from the $100,000 to at least $122,148. Like the base salary requirement, the DOL has also proposed updating the total annual compensation amount for this exemption so that it will increase without additional rulemaking.
Many stakeholders expected the DOL to propose changes to the “duties test” applicable to the executive, administrative, and professional exemptions. The DOL did not propose specific changes to any of the duties tests, but rather, solicited public comments on them, as well as on the proposed salary levels.
As the changes are “proposed,” they do not currently have the force of law. They could also be modified after the public “comment period” and further DOL review. When the final regulations are issued they will likely not take effect for several months after publication. These administrative steps will likely push the effective date of the legally binding “final” regulations into 2016.
In the interim, employers would be well served to revisit their current “salaried exempt” classifications, as they will have some important decisons to make, including: (1) whether to increase certain job classifications’ salaries to meet the new salary thresholds; (2) whether to convert certain salaried employees to hourly non-exempt and track hours worked; (3) when to implement any changes; and (4) figuring out how to pay for the increased labor costs.