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DOL - Overtime Eligibility Rules

Department of Labor's (DOL) Proposed Regulations Regarding Overtime Exemptions

  • Do you have employees who check their e-mails from home?
  • Do you have employees who are currently exempt earning less than $50,000?
  • Do you provide employees with a flexible work schedule?

If you answered yes to any of the above, you need to be aware of the proposed changes to update the regulations governing which executive, administrative and professional employees are entitled to the Fair Labor Standards Act's minimum wage and overtime pay protections. 

Below you can learn more on the proposed regulation, the impact to employers and employees and how you can share your comments on the proposed regulation.

Background

On March 13, 2014, President Barack Obama issued a memorandum directing DOL to "modernize" the FLSA overtime regulations governing eligibility for the white collar exemption. On July 6, 2015, DOL published proposed changes to the regulations. In the proposal, which is known as a Notice of Proposed Rulemaking (NPRM) or proposed rule, DOL asked the public for input on several suggested changes.

Currently under the Fair Labor Standards Act (FLSA), an individual must satisfy three criteria to qualify as a white collar employee exempt from federal overtime pay requirements: first, they must be paid on a salary basis (the salary basis test); second, that salary must be more than $455/week ($23,660 annually) (the minimum salary requirement or salary threshold); and third, their "primary duties" must be consistent with executive, professional or administrative positions as defined by the US Department of Labor (DOL) (the primary duties test).

Employees who do not meet these three requirements or fail to qualify for another exemption must be treated as "hourly" or "nonexempt" employees and be paid for each hour worked and at a rate of one and a half times their normal hourly rate for all hours worked over 40 in a given work week. The latter is known as overtime pay. To ensure employees are paid for all hours worked and at the proper rate for overtime, employers must carefully track the hours nonexempt employees work.

Key Provisions under the Notice of Proposed Rulemaking (NPRM):

According to the Department of Labor's Wage and Hour Division, the primary focus of the Notice of Proposed Rulemaking (NPRM) is on updating the compensation and salary levels needed for these workers to be exempt - and will affect employees across all industries and sectors. Specifically, the Department proposes to:

  • set the standard salary level at the 40th percentile of weekly earnings for full-time salaried workers would raise the salary threshold from $455 a week (the equivalent of $23,660 a year) to about $970 a week ($50,440 a year) in 2016; 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.

The Department is also proposing to automatically update the standard salary and highly compensated employees total annual compensation requirements based on the Consumer Price Index for All Urban Consumers.

In addition, the Department discusses the current duties test and solicits suggestions for additional occupation examples and requests comments on the current requirements.

Similarly, the Department seeks comment on the possibility of including nondiscretionary bonuses to satisfy a portion of the standard salary requirement. The Department is not proposing specific regulatory changes on either of these issues.

What's the Impact?

  • The increase in the salary threshold from $455 per week to $970 per week is a massive and unprecedented 113% increase. This proposed salary threshold is higher than minimums set under any state laws and does not take into account different industries and economic differences in various regions across the nation.
  • The salary threshold has historically been intended to screen out obviously nonexempt employees and has relied on the duties test to evaluate whether employees making more than the minimum salary fit within the exemption.  DOL's proposal is inconsistent with this model and, if implemented, millions of executive, professional and administrative employees that would have fit within the exemptions could be reclassified as hourly employees.
  • DOL has asked for public input on the current primary duties test, it said it is considering changes to the duties test, including bringing back aspects of the "long test". The agency asked several questions about limiting the amount of time exempt employees could perform nonexempt work and/or eliminating the provision in the current regulations on concurrent duties (i.e. the provision in the regulations that allows exempt employees to concurrently perform exempt and non-exempt work such as a manager who supervises employees and serves customers at the same time). Any such substantial changes that would be included in the final rule would be dropped in without any opportunity to review or comment on them.
  • Employers must closely track nonexempt employees’ hours to ensure compliance with overtime pay and other requirements. As a result, nonexempt employees often have less workplace autonomy and fewer opportunities for flexible work arrangements, career training and advancement than their exempt counterparts.
  • If approved, these changes could have a significant impact on your company's wage and benefits policies. Imagine having to track every minute that an employee spends checking e-mail at home or not responding to a potential customer because it may take them into overtime. Or imagine having to take away a flexible schedule from an employee because you need to track their hours more diligently - taking away an employee benefit and potentially hindering your business' ability to connect with customers at different times of the day.
  • When employees have been reclassified from exempt to nonexempt, there is very often a decline in employee morale, as this change is generally seen as a loss of "workplace status." Employees often believe they are being punished or demoted, and some even lose trust that their employer sees them as a professional.
  • If DOL chooses to implement substantial changes to the duties test in its final rule without first undergoing a notice-and-comment period on the specific details of the proposal and providing related cost and economic analysis, employers and the public in general will not have the opportunity to comment on the specific changes made. This will leave the public with no opportunity to voice their concerns about the potential impact the proposal could have on employers, workers, or the economy as a whole.
  • DOL has issued a proposal that could dramatically alter the white collar exemptions for overtime under the Fair Labor Standards Act and has only permitted a 60-day comment period for organizations to analyze potential consequences. This is not enough time to review such a drastic change

Let your voice be heard

The Greater Reading Chamber of Commerce & Industry (GRCCI) shares the concern that this misguided public policy initiative could result in unintended consequences that will hurt workers who could end up being reclassified to nonexempt status or having their salaries adjusted. Worse still, the current proposal also indicates that employers will only be allotted 60 days to comply with annual changes, which is an insufficient time period to evaluate the change and communicate it to employees. 

The U.S. Department of Labor is soliciting comments about the plan until Friday, Sept. 4, after which it will proceed to final rulemaking. Click here to read the comments submitted by GRCCI.  You are encouraged to offer you feedback on this labor policy and can do so by:

Take Action

You are encouraged to offer you feedback on this labor policy.

We have created a draft comment, for you convenience, to send to the Department of Labor. Please edit this message, to add in your specific examples of the effects the proposed regulations could have to your organization or business. Sharing specific examples provides powerful real-life scenarios of how this regulation could impact employers and employees. 

Follow these Two Easy Steps to make your voice heard!

Step 1:  Copy the draft comments provided with your customized edits and submit you comment by accessing this link.

Step 2: Click Here to send an email to your US Senator and Congressman a copy of  your comment provided to the Department of Labor.  Note  – if you have made edits to original draft comment provide you will need to incorporate them before sending your email.


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