Coming Changes to Overtime Exemptions Rules Will Have Serious Impact on Employers
The Fair Labor Standards Act (“FLSA”) requires that employees be paid minimum wage and overtime pay at a rate of not less than one and one-half times an employee’s regular rate for hours worked over 40 in a workweek. There are a few exceptions to this requirement, including the so-called white collar exemption for executive, administrative, professional, and certain computer and outside sales employees. Those exemptions are defined by Department of Labor (“DOL”) regulations. Whether an employee is exempt depends both on the amount paid (the “salary test”) and the nature of the employee’s duties. Recently, the DOL issued a proposed regulation that would radically change the salary test by raising the salary requirement from $23,600 to approximately $50,440, followed by annual adjustments.
In addition to raising the threshold salary level required for the exemption to apply, the DOL is considering changes to the duties requirements. The DOL has not suggested specific changes to the duties test, but the DOL solicited input from interested parties on whether revisions are needed and whether employees must spend a specified minimum amount of time performing their primary duty to be considered exempt.
The DOL is in the process of considering the comments and will draft its final rule. Whatever the provisions of the final rule, it seems inevitable there will be a substantial increase in the salary test. This will affect millions of employees and have a severe impact on employers, who will have to choose between increasing salaries, paying overtime to formerly exempt employees, reclassifying employees, limiting hours of work and/or reducing benefits, all of which have legal implications. Under the FLSA, an employee can bring an individual or collective action for alleged overtime violations, and recover actual damages, liquidated damages and attorney’s fees, and there is no shortage of FLSA plaintiffs’ lawyers. Employers will have to take great care in reconciling the needs of their businesses with the requirements of the rule as finalized. We are monitoring this situation and welcome your inquiries regarding the status of the rule and strategies for dealing with its effects on your business.