Department of Labor Issues Overtime Regulations

The Department of Labor’s Wage and Hour Division (DOL) published its proposed rule that amends the regulations under the Fair Labor Standards Act (FLSA) governing the “white collar” exemption from overtime pay for executive, administrative and professional employees.

Background:
The Fair Labor Standards Act (FLSA or Act) guarantees a minimum wage and overtime pay at a rate of not less than one and one-half times the employee’s regular rate for hours worked over 40 in a workweek. While these protections extend to most workers, the FLSA does provide a number of exemptions. The Department of Labor (Department) proposes to update and revise the regulations issued under the FLSA implementing the exemption from minimum wage and overtime pay for executive, administrative, professional, outside sales, and computer employees. This exemption is referred to as the FLSA’s “EAP” or “white collar” exemption. To be considered exempt, employees must meet certain minimum tests related to their primary job duties and be paid on a salary basis at not less than a specified minimum amount. The standard salary level required for exemption is currently $455 a week ($23,660 for a full-year worker) and was last updated in 2004.

The Department has long recognized the salary level test as “the best single test” of exempt status. If left at the same amount over time, however, the effectiveness of the salary level test as a means of determining exempt status diminishes as the wages of employees entitled to overtime increase and the real value of the salary threshold falls. In order to maintain the effectiveness of the salary level test, the Department proposes to set the standard salary level equal to the 40th percentile of earnings for fulltime salaried workers ($921 per week, or $47,892 annually for a full-year worker, in 2013). (1) The Department is also proposing to set the highly compensated employee annual compensation level equal to the 90th percentile of earnings for full-time salaried workers ($122,148 annually). Furthermore, in order to prevent the levels from becoming outdated, the Department is proposing to include in the regulations a mechanism to automatically update the salary and compensation thresholds on an annual basis using either a fixed percentile of wages or the CPI-U.

The proposed rule from DOL:
• would double the salary threshold for employees who are eligible to receive overtime pay, from $23,660 to $50,440. This salary threshold will also be updated every year in the Federal Register.
• does not propose regulatory changes to the duties tests, which require employees to perform certain primary duties to qualify for an overtime exemption. However, DOL is seeking feedback on whether these duties tests should be revised.

DOL estimates that this rule would:
• directly affect 4.6 million workers in the U.S, and total direct employer costs for Year 1 are estimated to equal $592.7 million dollars.
• cost each small business, on average depending on the number of workers covered by the regulation, $100 to $600 in direct costs and $320 to $2,700 in additional payroll costs to employees in the first year after the promulgation of the proposed rule.
• cause each small business to spend one hour of time for regulatory familiarization; one hour per each affected worker in adjustment costs; and five minutes per week scheduling and monitoring each worker expected to be classified as overtime eligible as a result of the proposed rule.

Advocacy is seeking feedback on the numbers and types of small businesses affected by this rule-making, the compliance costs of this rule to these small businesses, and any significant regulatory alternatives that may minimize the impacts of this rule.

Comments are due to DOL on September 4, 2015.

• Comment to the Proposed Rule on Regulations.gov.
• Link to the PDF of the Proposed Rule on DOL’s Website.
• Link to the Fact Sheet on DOL’s Website.
• Link to the FAQ on DOL’s Website.
• Advocacy Contact: Janis Reyes or call 205-205-6533.

Sources: SBA Office of Advocacy and regulations.gov