On June 29, 2015, President Obama announced his plan to extend overtime protections to nearly 5 million additional workers in 2016. On the heels of President Obama's announcement, the United States Department of Labor Wage and Hour Division (the “Department”) released its long-expected proposed rules changing the way overtime exemptions are applied to executive, administrative, and professional (aka “white collar”) employees under the Fair Labor Standards Act (“FLSA”). While the proposed rules may be considered a benefit to certain workers, the rules, if enacted, will necessitate a significant overhaul of many employers' payment policies.
Under the current rules—last updated in 2004—a white collar worker who earns at least $455 per week ($23,660 annually) in salary is exempt from federal overtime requirements provided the worker meets the “job duties” component of the executive, administrative, or professional exemptions. Additionally, certain highly-compensated employees, also meeting the “job duties” component, are currently exempt from the overtime pay requirement if they are paid total annual compensation of at least $100,000 (which must include at least $455 per week paid on a salary or fee basis).
The proposed update will raise the salary levels required for the exemptions; namely, the Department proposes to:
- Set the standard salary level at the 40th percentile of weekly earnings for full-time salaried workers, which would increase the salary threshold from $455/week or $23,660 annually (current rule) to $921/week or $47,892 annually;
- Increase the total annual compensation threshold needed to exempt highly compensated employees to the annualized value of the 90th percentile of weekly earnings of full-time salaried workers, which would increase the “highly compensated” employee threshold from $100,000 annually (current rule) to $112,148 annually; and
- Establish a mechanism for automatically updating the salary and compensation levels going forward to ensure that they will continue to provide a useful and effective test for exemption. In other words, ensure that there is not a twelve-year gap between rule updates.
On July 2, 2015, President Obama promoted his overtime expansion plan at the University of Wisconsin-La Crosse. The President sees this as an issue of basic fairness. If you work longer or work harder, you should get paid for it. The President opined that sometimes companies take advantage of the current rule by paying low salaries as a means to avoid paying “earned” overtime and a minimum wage. To view the President's speech, please visit: www.whitehouse.gov.
A sixty-day comment period opened on June 30, 2015 so that any interested party can submit comments to the Department regarding this proposed change. Following the comment period, adjustments to the proposed rule will be published in the Federal Register and put out in final form sometime next year.
For additional information and to submit comments, please visit the Department's Wage and Hour Division's Proposed Rule Website: http://www.dol.gov/whd/overtime/NPRM2015/.
Farhang & Medcoff, PLLC has extensive experience in labor and employment matters including state and federal wage and hour laws and regulations. Please contact us if you have any labor or employment law questions—we are ready to protect your interests.