Employment Law Note – Proposed changes to overtime rules

A worker is punching his time card with the automatic clockThere have been rumblings about changes to overtime rules and the Fair Labor Standards Act (“FLSA) for several months now. It started on March 13, 2014, when President Obama signed a Presidential Memorandum directing the Department of Labor (“DOL”) to update the regulations defining which white collar workers are protected by the FLSA’s minimum wage and overtime standards. 79 FR 18737 (Apr. 3, 2014). According to the DOL, the memorandum “instructed the Department to look for ways to modernize and simplify the regulations while ensuring that the FLSA’s intended overtime protections are fully implemented.”

Since I devote a substantial amount of time to employment law issues, my ears officially perked up last week when President Obama announced that the details of the proposed rule-making were going to be released soon. Today, July 6, 2015, the Wage and Hour Division of the Department of Labor (“DOL”) officially released the text of the proposed rule, entitled Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees; Proposed Rule (29 CFR Part 541). The rules are open for public comment until September 4, 2015.

The full text of the proposed rule can be found here.

The DOL “proposes to update and revise the regulations issued under the FLSA implementing the exemption from minimum wage and overtime pay for executive, administrative, professional, outside sales, and computer employees.” This exemption is referred to as the FLSA’s “EAP” or “white collar” exemption. Historically, each of three tests had to be met for the exemption to apply: (1) The employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the “salary basis test”); (2) the amount of salary paid must meet a minimum specified amount (the “salary level test”); and (3) the employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations (the “duties test”).

The DOL proposes the following changes:

(1) to update the salary level to ensure that the FLSA’s intended overtime protections are fully implemented, and to simplify the identification of nonexempt employees, thus making the EAP exemption easier for employers and workers to understand;

(2) automatically updating the salary level to prevent the level from becoming outdated with the often lengthy passage of time between rulemakings; and

(3) possibly revising the duties tests are necessary in order to ensure that these tests fully reflect the purpose of the exemption.

When it comes to the FLSA, employers are understandably concerned about identifying which employees are exempt from overtime pay. (If an employer does not hold this concern, he or she may be in for a rude awakening). Under the current regulations, an executive, administrative, or professional employee must be paid at least $455 per week ($23,660 per year for a full-year worker) in order to come within the standard exemption. The DOL is proposing to increase this salary level to $921 per week, (or $47,892 annually for a full-year worker, in 2013), which would likely add millions of people to the pool of employees entitled to overtime pay. This simple change will have real and immediate impacts for employers, requiring most companies to re-survey its employees and reconsider many exemption classifications.

The proposed rule-making document contains dozens of paragraphs discussing the “salary level test” and the “duties test”, and the important interplay between the two. In a nutshell, it seems that the DOL is continuing the trend of placing more emphasis on the salary amount, and less emphasis on job descriptions and duties. This renewed focus on the salary can probably be explained by the following: (1) there has simply been too much confusion (and litigation) arising from classification based on job duties; and (2) a number is easier to understand that a subjective description of what a person does all day. For the time being, employers may want to consider visiting the DOL’s website and submitting comments regarding the proposed rule changes. Speak by September 4th, or forever hold your peace.


 

 

George B. Ward and the attorneys at De Leon & Washburn, P.C. are available to assist clients with employment agreements, separation advice, and employment litigation. For more information regarding the firm’s practice areas, please visit our Labor & Employment Law page, and please feel free to contact the attorneys at any time.

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