On June 30, 2015 the Department of Labor issued long awaited proposed regulations under the Fair Labor Standards Act (FLSA). The FLSA regulations have not been revised since 2004 when the salary level amount to be exempt was raised to its current amount of $455 per week or $ annually. The new proposed regulations seek to raise the salary level amount for an employee to be exempt to $970 a week or $50,440 a year by 2016. This is a significant increase which will mean that for the current white collar exemptions of executive, administrative, learned professionals and some computer employees, if they now make less than $970 a week, they will no longer be exempt under the white collar exemptions. They will therefore now be entitled to overtime for all those hours they work over 40 in a given work week.
Not only will this mean a significant amount that employers will now have to pay in overtime but it can also be viewed as almost a demotion by previously exempt employees. Employers will now be faced with either paying these employees overtime to which they were previously ineligible for or raising their salary level to more than $970 a week so that they will meet the three part test to be exempt under the FLSA.
This three part test requires that the employee be (1) paid on a salary basis, and (2) at a salary level now of not less than $970 a week and (3) that they meet the duties test set forth for each of the white-collar exemptions. The Notice of Proposed Rulemaking also sets forth that the proposed regulations would establish a mechanism for automatically updating the salary and compensation levels going forward each year to ensure that they will continue to provide a useful and effective test for exemption.
The DOL estimates that these proposed regulations could change the exempt status of close to five million white-collar workers within the first year of implementation. The rulemaking period includes extensive time for comments and revisions so employers should not expect that these revised regulations will be effective until at least the end of 2015 or early 2016. But one thing is for sure. Employers may soon be paying significantly more in overtime to close to five million currently exempt workers.