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New FLSA Regulations Proposed Regarding Who is Subject to Overtime


August 20, 2015 by Bob Meinig
Category: FLSA

New FLSA Regulations Proposed Regarding Who is Subject to Overtime

Note: The new FLSA final overtime rules were scheduled to go into effect December 1, 2016. However, a federal district court has issued a nationwide preliminary injunction against implementation of the rules. Implementation, if it happens at all, must await further hearings and action by the court. See our New FLSA Overtime Rules Put on Hold blog post.

The U.S. Department of Labor (DOL), at President Obama’s instigation, has proposed new Fair Labor Standards Act (FLSA) regulations that, if adopted, will significantly reduce the number of employees that will be exempt from the FLSA’s overtime requirements. The proposed regulations, published on July 6, will likely go into effect in 2016 and will require that overtime be paid to any employee making less than $50,440 per year ($970 per week), no matter what duties they perform – up from the current salary level of $23,660 per year ($455 per week). Employees making more than that amount must still satisfy the “salary basis” and “duties” tests that are used to determine whether a potentially applicable exempt category applies. The new threshold salary level is proposed to be increased automatically on an annual basis.

A little background. The basic FLSA overtime requirement is that employers pay covered (nonexempt) employees at a rate of one-and-one-half times their regular rate of pay for every hour over 40 that they work in a workweek. Variations from that basic requirement apply to police and fire fighters. But certain categories of employees are not covered by this overtime requirement, most notably those who qualify for the “white collar” exemptions – administrative, executive, and professional employees. An employee must currently satisfy three requirements to be an exempt executive, administrative, or professional employee:

  1. the employee must be paid on a salary basis;
  2. the employee’s salary must be at least $455 per week ($23,660 per year); and
  3. the employee must meet a duties test specific to each category.

For an overview of overtime requirements, see the section on Overtime Pay in our Fair Labor Standards Act page.

The salary level threshold. In his memorandum of March 13, 2014 in which he directed DOL to modernize and streamline the existing overtime regulations, President Obama noted that the existing regulations are outdated and “have not kept up with our modern economy.” Indeed, as pointed out in the narrative introducing the proposed regulations, the current salary level threshold, last changed in 2004 to $455 per week, is below the poverty threshold for a family of four.  

Under the proposed rules, the salary level threshold will increase to a level equal to the 40th percentile of full-time salaried workers, which currently is $921 per week or $47,892 per year. That threshold level is projected by DOL to be $970 per week, or $50,440 per year, when the final rule is issued in 2016.

DOL also proposes that the minimum salary be automatically increased on an annual basis, eliminating the need for periodic, formal rulemaking to make adjustments. Two possible methods are being proposed for the automatic increase: updating the level to maintain it at a fixed 40th percentile of earnings; or increasing the level based on fluctuations in the Consumer Price Index. DOL is seeking comments on which methodology would be the most appropriate basis for these annual updates.

The new salary threshold will simplify application of the white collar exemptions by reducing the number of employees for whom employers must perform a duties analysis. But, with this higher salary threshold, many small local governments may find it difficult to classify any of its employees as exempt.

The highly compensated employee salary threshold. Currently, FLSA regulations provide an exemption for “highly compensated employees” who make at least $100,000 annually and who regularly perform any one or more of the exempt duties of an executive, administrative, or professional employee. The proposed regulations raise that threshold income level for highly compensated employees to $122,148 annually, a figure also to be adjusted annually according to the same formula adopted for the white collar exemptions. It’s likely this exemption does not come into play for most local governments.

No changes to the duties test? The proposed regulations are notable for what they do not do – propose changes to the duties tests that are a key part of qualifying for a white collar exemption. Instead, DOL’s proposed regulations solicit input from employers and stakeholders on whether adjustments to the duties tests are necessary, particularly in light of the proposed change in the salary level test. So, it’s possible that the duties tests could still be changed as part of the final rules.

Time to comment and time to prepare. Keep in mind that any new regulations will not take effect immediately. So, there is nothing local government employers need to do right now in response; provided, of course, that they are already in compliance with the current rules. And, ultimately, there may be little that will need to be done for FLSA compliance beyond reclassifying those exempt employees whose salary will fall below the new threshold. Of course, there likely will be budgetary impacts that will also need to be considered.

The public (including local governments) has until September 4, 2015 to submit comments on the proposed regulations. (See the online comment form you can click on at the top of the proposed rules.) DOL must then consider the comments before issuing final regulations, after which there will be a phase-in period. So, it will be January 2016, at the earliest, before any changes will take effect.

For general information and links to further information on the FLSA, see our Fair Labor Standards Act webpage. Also, the introductory narrative to the proposed rules is quite informative.

About Bob Meinig

Bob has written extensively on the state Open Public Meetings Act and on municipal incorporation and annexation. At MRSC, he has also advised local governments for over 25 years on diverse legal issues.

VIEW ALL POSTS BY Bob Meinig

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