On March 13, 2014, President Obama issued a Presidential Memorandum directing the Department of Labor (“DOL”) to update the Fair Labor Standards Act (“FLSA”) regulations, particularly as they pertain to white collar exemptions (executive, administrative, professional, outside sales, and computer employees) to overtime and minimum wage.  More than a year later, on June 30, 2015, the DOL issued the anxiously awaited Notice of Proposed Rulemaking (“NPRM”), which includes significant increases to the salary basis test applicable to white collar employees.

Specifically, the NPRM seeks to increase the minimum salary paid to exempt employees from $455 per week ($23,660 per year) to the 40th percentile of weekly earnings for full-time salaried workers.  In 2015, this minimum is $921 per week or $47,892 per year; in 2016, when the regulations would likely be implemented, the DOL estimates that this minimum will be $970 per week or $50,440.  If implemented, in order to be exempt from overtime and minimum wage requirements under the FLSA, an employee must be paid at least the proposed minimum salary, free and clear, each week that s/he performs work on behalf of his or her employer.

The DOL further proposes to establish an automatic threshold to be updated each year, so that the salary basis minimum does not remain stagnant.   In addition, the NPRM modifies the requirements for being considered a “Highly Compensated Employee,” to a minimum salary in the 90th percentile of full-time salaried workers, or $122,148 per year as of 2015.

As required, the DOL has invited comment to these proposed revisions.  Besides the salary increases, the NPRM seeks feedback about whether to allow certain non-discretionary bonuses, such as for production or performance, to satisfy a portion of the salary basis test.  While the proposed regulations do not specifically address the duties tests for the white collar exemptions, the DOL does also invite comment and suggestions for modifications to those requirements.   It is unclear whether the final rule will implement any changes to the duties tests.

These changes represent the first update to the overtime regulations since August of 2004.  While not yet final, it is highly likely that the final regulations will include a salary basis threshold significantly higher than the current minimum.  As a result, many companies will need to re-classify at least some employees as non-exempt or provide a significant increase in salary.   Employers should begin a self-audit to determine which employees could be impacted by these changes, and consider how best to mitigate any adverse impact to their business.

Written comments regarding the NPRM must be received by the DOL between July 6, 2015 and September 4, 2015 and can be submitted at www.regulations.gov.  Business advocates suggest that employers take the time to submit comments describing the impact of the proposed changes on their business, as the more comments received, the more likely they are to impact the final regulations.  Please contact us to discuss the impact of these proposed revisions on your workforce and/or for assistance in formulating and submitting comments to the DOL in response to the NPRM.

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