Time to Rethink Time-And-A-Half: Proposed Rule Changes to the Fair Labor Standards Act’s Overtime Exemptions

July 20, 2015

Authored by: Melissa Yasinow

The Fair Labor Standards Act (“FLSA”) governs the relationship between employers and employees, and mandates that employers pay overtime to certain types of workers. On June 30, 2015, the U.S. Department of Labor (“DOL”) issued proposed rule changes to the FLSA that will make more employees eligible for overtime pay. For a copy of the proposed rule changes, click here.

Under the FLSA, employers must pay employees overtime at time-and-a-half for hours worked in excess of 40 hours a week. The FLSA’s overtime requirement does not apply to “white collar employees” and “highly compensated employees.” The proposed rule changes raise the bar on what it means to be a “white collar” or a “highly compensated” employee.

Under the current rules, an employee is “white collar” and, therefore, exempt from overtime pay if: (i) the employee receives a predetermined and fixed salary; (ii) the salary is at least $455 a week, or $23,660 a year, and; (iii) the employee’s duties are primarily “executive, administrative, or professional.” The proposed DOL rule changes more than double the minimum salary threshold for “white collar” employees, from $455 per week/$23,660 per year to $921 per week/$47,892 per year. The DOL expects that by the time it issues its final rule changes to the FLSA in 2016, the minimum salary threshold for “white collar” employees will be $970 per week, or $50,440 for a full-year worker.

Similarly, the DOL rules exempt “highly compensated employees” from the FLSA’s overtime requirements. Under the current rules, an employee is “highly compensated” if that employee receives at least $100,000 annually, and primarily performs “non-manual” duties that are also “executive, administrative, or professional”. The proposed DOL rule changes would require a “highly compensated employee” to be paid at least $122,148 per year.

Finally, the DOL’s proposed rule changes would require the minimum salary threshold for both “white collar” and “highly compensated” employees to be automatically updated on an annual basis. This automatic yearly increase would be tied to either a fixed percentile of wages or the Consumer Price Index.

The DOL is seeking comments on the proposed rule changes over the next 60 days. Although the DOL has not proposed rule changes on what it means for a “white collar” or “highly compensated” employee to engage in “executive, administrative, or professional” duties, the DOL is specifically seeking comments on whether it should also require exempt employees to perform these duties for a minimum amount of time. For example, under California’s version of the FLSA, exempt employees must spend at least 50% of their time performing their primary “executive, administrative, or professional” duties, without counting time during which nonexempt work is concurrently performed. The DOL is inquiring as to whether it should adopt California’s model, adopt some other standard, or remain silent on the issue altogether.

The DOL’s final rule changes to the FLSA’s overtime exemptions will likely take effect in mid-2016. In light of the proposed changes, and the fact that the standards for classifying employees as “exempt” or “non-exempt” is one of the most misunderstood provisions of employment law, we suggest that employers start reviewing their employee classifications now to determine how they can best address the upcoming overtime pay changes.

For more information on the DOL’s proposed amendments to the FLSA’s overtime exemptions, or for any other employment law questions, please contact your KJK attorneys.