The Department of Labor (DOL) today issued proposed regulations which, if adopted, will dramatically increase the number of executive, administrative and professional (white collar) workers eligible to earn overtime compensation under the Fair Labor Standards Act (FLSA). The proposed rulemaking—which more than doubles the salary-basis requirement for the white-collar exemptions to the FLSA’s minimum-wage and overtime requirements—is intended to implement President Obama’s 2014 directive to “modernize and streamline” the FLSA’s regulations.

Proposed Changes to Salary Basis Test Only

At the end of last year, the DOL set a deadline of February 2015 to propose updated regulations implementing the FLSA’s white-collar overtime exemptions. Many initially anticipated that these regulations would revise two existing requirements of the white collar exemptions: the “salary basis” test and the “primary duties” test. The long-awaited proposal, however, addresses only the former. Under the proposed rule, the salary threshold for exemption status will move from $455 per week ($23,660 annually) to a projected level of $970 per week ($50,440 annually) in 2016. Under the current regulations, employees in relatively low-level positions (fast food restaurant managers are often used as an example) could conceivably qualify as exempt employees who receive no overtime compensation for working well in excess of 40 hours in a week. The potential exclusion of such low-level workers from the FLSA’s protections has been identified as a prime motivator for the proposed salary-basis change. Furthermore, to ensure the minimum salary threshold remains meaningful over time, the DOL also has proposed automatic updates to the salary-basis threshold going forward.

Are Changes to the Primary Duties Test on the Horizon?

Anticipated changes to the primary duties test, which would extend the white collar exemptions only to employees who spend more than 50 percent of their time on duties that are deemed exempt, were not included in today’s announcement. However, such revisions are consistent with the goals of the Obama administration and are still under consideration by the DOL. Employers should stay tuned for further developments in this key area.

Next Steps for Employers

The proposed regulations are subject to the federal rulemaking process, including a number of time-consuming steps before any rule change could take effect. In the meantime, employers should consider taking steps to prepare.

  • If the current proposed rule is adopted and the salary threshold for the white collar exemptions does leap upwards, employers will lose the exempt status of many employees. Employers will need to consider whether it is feasible to give raises, as needed, to exempt employees who fall below the new threshold (staying on top of automatic threshold increases) or, alternatively, whether it makes more sense to convert positions to non-exempt status.
  • If positions are converted to non-exempt status, employers will need to be mindful of the FLSA’s other requirements for nonexempt employees, like tracking of hours and recordkeeping. Employers may also consider cost-saving measures, such as reducing workers’ hours to avoid paying overtime and hiring additional workers at lower wages.
  • To prepare for potential changes to the primary duties tests, employers may wish to audit the exemption status of all positions, especially of “grey zone” roles (roles that involve performing some exempt-level tasks as well as some tasks that arguably do not meet the current exemption criteria). These may present the most immediate concern if, as anticipated, future updates to the regulations significantly narrow the duties tests for white-collar exemptions.
  • Employers may wish to update job descriptions now to ensure they demonstrate to a reader not familiar with the company—e.g., a DOL auditor or a plaintiff’s lawyer—exactly why a role is exempt in clear, straightforward language.
  • As always, employers should be mindful of state laws, which may impose greater restrictions both in terms of the salary-basis and duties requirements for the white collar exemptions. In the wage-and-hour context, whichever law – state or federal – is more protective of employees controls.
  • Finally, employers should hire qualified counsel to assist with a general wage-and-hour audit to ensure that hidden compliance issues do not catch them by surprise.