The US Department of Labor (DOL) has finally answered the call President Obama gave in March of 2013 to update the Fair Labor Standards Act (FLSA) white collar exemption rules. The DOL’s proposed new rule could affect over 11 million Americans and extend overtime protection to around 5 million. If you didn’t have time to read the 295 page DOL report, here’s a quick review of the highlights.
The new rule would more than double the minimum salary requirement, raising the weekly income threshold for the overtime exemption from $455 a week to $921 a week, and includes a provision that will automatically update the minimum salary requirements every year. The proposed changes would also raise the threshold for highly compensated employees (HCE) from a $100,000 annual salary to $122,148. The suggested updates would provide changes to a set of rules that have been long outdated by inflation and only been updated twice over the past four decades.
To qualify for exemption the employee must meet a salary basis test, duties test and salary level test. The DOL has noted that it is still debating whether it will consider nondiscretionary bonuses, which some argue will provide a more accurate representation of an employee’s earnings.
While the proposed new rules will provide overtime protection to millions of employees, they will also have a substantial effect on employers across the country. Employers will have to reevaluate their employee classification statuses to see which positions are overtime eligible or exempt. They will have to notify their employees of the changes in policies and position classifications. If the proposed rules are adopted, many employers could likely end up having to pay overtime to many previously exempt employees.
The DOL projects that the new rules will simplify the employee classification process—in a large part because of the removal of duties testing for employees below the salary requirement. The simplification of these rules should save employers money down the line by lessening the amount of lawsuits related to this issue, thereby lowering employers’ litigation costs.
If you have comments on these proposed changes, the DOL wants to hear from you. You can submit your comments electronically here. All comments must be submitted by August 29, 2015.