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Wage and Hour UpdateJuly 29, 2015

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Practices

Summary

The Fair Labor Standards Act (FLSA) requires employers to pay minimum wage and overtime pay to employees. The Department of Labor (DOL) has proposed revisions to the regulations relating to the exemptions for executive, administrative, professional, outside sales and computer employees, also known as the "white collar" exemptions. To qualify for these exemptions, the employee must satisfy certain job duties tests and receive a minimum weekly salary.

Under DOL's proposed rule, 4.6 million currently exempt workers will become entitled to minimum wage and overtime pay under the FLSA.

The new rule would more than double the salary threshold for the executive, administrative, and professional exemptions and raise the pay thresholds for certain other exemptions, while building in opportunity for future annual increases.

Salary Level Threshold for White Collar Exemptions 

The current salary level threshold for the white collar exemptions stands at $455 per week or $23,660 per year. Under its proposed rules, the DOL sets the salary threshold for the white collar exemptions at the 40th percentile of weekly earnings for full-time salaried workers nationwide. The DOL has proposed increasing the minimum salary requirement to $921.00 per week, or $47,892.00 annually. The white collar exemption salary threshold will also adjust on an annual basis based on a fixed percentile of wages or the consumer price index under the proposed rule. The DOL is currently seeking comments regarding which methodology would be most appropriate.

Highly Compensated Employee Exemption

The proposed rule also raises the salary basis for highly-compensated employees. Previously, an employee who made at least $100,000 per year and performed at least one exempt duty would be exempt under the highly-compensated employee exemption. The proposed rule changes the highly compensated employee salary threshold to the "annualized value of the 90th percentile of weekly wages of all full-time salaried employees" ($122,148/year in 2013) to qualify for the exemption. 

No Proposed Changes to Duties Requirements

While the increase in the salary basis was expected, in a somewhat unexpected turn of events, the proposed rule does not contain any changes to the current "primary duties" tests. The DOL is considering revisions to duties tests, however, and has solicited comments on whether employees should be required to spend a minimum amount of time performing their "primary duty" in order to qualify for the exemption. 

Nondiscretionary Bonuses May Be Included in Salary Level Requirement

In the past, the DOL has not included nondiscretionary bonus payments when determining whether an employee's salary meets the white collar exemption threshold. In its proposed rules, the DOL seeks input on whether it should permit some amount of nondiscretionary bonuses and incentive payments to count toward a portion of the salary level requirement.

Next Steps

The proposed regulations are subject to a 60-day public comment period which ends on September 4, 2015. Any employer or trade association dissatisfied or concerned with the proposed regulatory text can submit comments. The Department has put the public on notice that employers may not have another opportunity to comment on the content of a Final Rule. 

Following the public comment period, the Department will issue a Final Rule. This process is likely to take at least six to eight months. A Final Rule is not expected before 2016.