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U.S. Department of Labor Proposes Dramatic Changes for FLSA Exempt Requirements

As Published in the November, 2015 Issue of the PELRAS Newsletter

Published on: Mon 8th Aug, 2016 By: David E Mitchell

The U.S. Department of Labor recently issued proposed regulations that would convert many employees who are currently exempt from the Fair Labor Standards Act’s overtime requirements into non-exempt employees who would be entitled to overtime pay if they work more than forty hours in a week.  

The FLSA’s minimum wage and overtime requirements do not apply to "any employee employed in a bona fide executive, administrative, or professional capacity"  29 U.S.C.A. § 213(a)(1).  The Department of Labor’s FLSA regulations detail duty-related requirements for each of these exempt categories, which were revised extensively in 2004.  Those requirements generally remain unchanged under the Proposed Regulations.  However, under the current regulations, in addition to meeting the other requirements for exempt status, an employee must also be paid at least $455 per week on a salary basis, the equivalent of $23,660 per year (with the exception of teachers, lawyers, physicians and licensed medical practitioners, to whom the salary basis test does not apply).  Employees who earn less than that amount do not qualify for FLSA exempt status and must be paid overtime if they work more than forty hours per week in addition to being paid at least the minimum wage for all hours worked.  Under the proposed regulations the $455 per week threshold for the executive, administrative, or professional exemptions would be increased to $921 per week, which is the equivalent of $47,892 per year.  Many currently exempt employees would fall below this proposed higher threshold.  The Department of Labor has further indicated that the threshold could increase to $970 per week, the equivalent of $50,440 per year, as soon as 2016, with automatic annual updates thereafter.  If the Proposed Regulations remain unchanged when the Final Rule is issued, employees below the threshold would be entitled to overtime pay for working more than forty hours per week.  The Department has also proposed increasing the threshold for the "highly compensated employees" exemption from $100,000 to at least $122,148.

The comment period for the Proposed Regulations closed on September 4, 2015.  The Department will consider the extensive comments it received, numbering approximately 250,000, and will likely issue a Final Rule sometime in the next year.  The Department’s refusal to extend the sixty day period for public comments, despite numerous requests to do so, suggests that the Final Rule will be placed on the fast track and issued as soon as possible, with a likely effective date sixty days after it is released.  The proposed change to the minimum salary requirement for exempt employees would not only result in increased overtime costs, it would require employers to closely monitor and accurately record the precise hours worked by such formerly exempt employees.