Anticipated Overtime Regulation Changes: What Now?
August 7, 2015
The federal Fair Labor Standards Act exempts from its minimum wage and overtime pay requirements persons employed in a bona fide executive, administrative, or professional capacity, as such terms are defined from time to time by regulations of the Secretary of Labor.
As readers are likely aware, the U.S. Department of Labor issued proposed revisions to its overtime regulations in July 2015 which would change the definitions of those terms. The DOL will issue final regulations in the next few months, after digesting the more than 100,000 comments received. The final regulations will likely become effective sometime in 2016.
For an employee to be exempt from minimum wage and overtime requirements under the traditional “white-collar” exemptions (executive, administrative and professional), the current regulations require generally that the employee be paid at least $455 per week on a salary basis, and perform the kinds of duties specified in the regulations. $455 per week equates to $23,660 per year. Most employees who might be exempt meet that salary requirement easily (other than part-timers), so we have usually had to focus only on the duties tests.
The Proposed Changes
The DOL’s proposed revisions to its regulations would change that salary requirement to the 40th percentile of all salaried full-time U.S. employees, which the DOL says will likely be $970 per week ($50,440 per year) when the revisions become effective.
Employees earning salaries less than whatever the DOL chooses for the salary threshold will be non-exempt and will have to be paid at time-and-a-half rates for all hours worked in excess of 40 in a workweek, regardless of whether their duties would otherwise qualify them for the exemption (unless they qualify for some other exemption). The proposed regulations also provide for automatic annual adjustments to the salary threshold.
The proposed regulations do not change the duties tests for executive, administrative and professional employees. But the DOL asked that the public comments include suggestions for changes to those parts of the regulations, so it is quite possible the final regulations will change the duties tests, too.
The Education Exceptions
A current regulation the proposed regulations did not change says employees who teach or tutor in an educational establishment are exempt professionals regardless of their pay. Another regulation left unchanged declares school administrators exempt if they are paid on a salary basis at least equal to the entrance salary for teachers in that educational establishment, and their primary duty is performing administrative functions directly related to academic instruction.
What To Do Now
Employers should be considering what changes the final regulations may require for employees now treated as exempt executive, administrative or professional employees who are paid less than $50,440 annually.
Employers should also consider which employees would be affected if the DOL’s final regulations use a 35th ($44,304 annual salary) or 30th ($40,196 annual salary) percentile instead of the 40th that was proposed.
Employers may decide to maintain all or some such employees’ exempt status by raising their salaries above the threshold. Employers who decide instead to treat currently exempt employees as nonexempt when the final regulations become effective should plan how to maintain more detailed records of hours worked to assure that those newly overtime-eligible employees are paid correctly.
Employers should also analyze current pay and actual work hours for such soon-to-be nonexempt employees. Some employers may want to adjust working hours so those employees will generally work 40 or fewer hours per week. Some may consider making changes to wage rates so that the employees’ post-final-regulations pay, including overtime pay, approximates what they are now being paid for whatever hours they actually work. Employers may also consider hiring more employees so overtime will be less necessary.