On June 3, 2015, the U.S. Department of Labor (DOL) released a proposed rule to modify the “white collar exemptions” provided by the Fair Labor Standards Act. As proposed, the change would have a far-reaching impact, since it would expand the number of employees who qualify for overtime pay based on salary exemption requirements.
To qualify for the white collar exemption, an employee must satisfy a variety of tests, including a duties test, a salary basis test and a salary level test. Currently, under the salary level test, only white collar workers making less than $23,660 a year are automatically eligible for overtime pay. Under the proposed rule, the salary threshold would increase to a projected $50,440 per year in 2016 and would be updated automatically each year in order to keep up with rising costs. The DOL has not yet proposed any changes to the duties test, which requires that an employee’s duties conform to executive, administrative or professional duties, as defined by law.
If enacted, it is projected that the rule would allow 6 million more white collar workers to be eligible for overtime compensation. As proposed, this rule could result in significant costs for employers, such as increased salaries or paying overtime wages to previously exempt employees.
In addition, employers would need to re-examine employees’ exemption statuses, review and revise overtime policies, notify employees of changes and adjust payroll systems. Employers may also incur additional managerial costs because they might need to spend more time tracking when employees clock in and out.
The DOL, on the other hand, projects that the higher salary level requirements could actually simplify the process of employee classification because employers would not be required to perform a duties test for employees making less than $50,440 per year, which, in turn, could result in fewer lawsuits and lower legal costs for employers.
The DOL invited the general public to comment on the new rule from June 3 to Sept. 4, 2015, during which it received more than 200,000 comments. The comment period is now closed and a final rule could be issued within the next few months. In the meantime, employers may wish to review exempt classifications for current employees and determine which employees may be affected if the rule is ultimately implemented as proposed.