The Fair Labor Standards Act (FLSA) applies to most employers, sets a federal minimum wage, and requires overtime pay for working more than 40 hours in a week. The FLSA allows employers to claim exemptions for bona fide executive, administrative and professional employees. The Department of Labor (DOL) sets rules to interpret the FLSA. On Tuesday, June 30, 2015, the DOL proposed new rules that would affect is anticipated to significantly affect the number of employees who are protected by FLSA minimum wage and overtime requirements.
Current Rules
"White collar" exemptions require both a predetermined minimum salary and job duties that meet the executive, administrative or professional duties tests.
Under current regulations, employers must pay the exempt employee at least $455 per week ($23,660 per year). This wage is below the federal government's 2015 poverty threshold for a family of four. Poverty guidelines are set by the United States Department for Health & Human Services.
An employer can claim an exemption for highly compensated employees who earn at least $100,000 in total annual compensation, if it can also meet a less onerous duties test.
Proposed Rules
The DOL’s proposed rule focuses on creating indices that allow the salary threshold to move with a changing economy. The indexing mechanism allows for increases in required minimum salary levels in an effort to make sure the exemption thresholds stay current over time. The indexing may be done by tying it to the Consumer Pricing Index or by tying it to federally calculated percentiles of weekly wages.
The proposed rules would limit the standard white collar exemptions to employers who pay at least the 40th percentile of weekly wages for all full-time salaried employees, or approximately $970 per week ($50,440 per year).
The proposal would also change the salary threshold for highly compensated employees to the annualized value of the 90th percentile of weekly wages of all full-time salaried employees ($122,148 per year).
The DOL is accepting comments on the proposed rules. In addition, other proposed rules may be coming, including rules regarding the duties tests and percentage of time spent on primary duties (this may affect the treatment of managers who also perform some non-exempt work) and rules regarding the treatment of nondiscretionary bonuses and incentive payments toward satisfying the salary test.
Preparing for Change
The proposed regulations are not final and may change. Employers can evaluate how the proposed salary threshold will affect their current classifications of employees, and the employers pay scales, overtime cost estimates, wage budgets, and bottom lines. For example, employers can immediately review current salaries to determine whether and how many exempt employees would fall under the proposed salary threshold and therefore no longer qualify for exemption, the estimated costs of such conversion, and the estimated cost of raising wages to the threshold minimum.
Current Rules
"White collar" exemptions require both a predetermined minimum salary and job duties that meet the executive, administrative or professional duties tests.
Under current regulations, employers must pay the exempt employee at least $455 per week ($23,660 per year). This wage is below the federal government's 2015 poverty threshold for a family of four. Poverty guidelines are set by the United States Department for Health & Human Services.
An employer can claim an exemption for highly compensated employees who earn at least $100,000 in total annual compensation, if it can also meet a less onerous duties test.
Proposed Rules
The DOL’s proposed rule focuses on creating indices that allow the salary threshold to move with a changing economy. The indexing mechanism allows for increases in required minimum salary levels in an effort to make sure the exemption thresholds stay current over time. The indexing may be done by tying it to the Consumer Pricing Index or by tying it to federally calculated percentiles of weekly wages.
The proposed rules would limit the standard white collar exemptions to employers who pay at least the 40th percentile of weekly wages for all full-time salaried employees, or approximately $970 per week ($50,440 per year).
The proposal would also change the salary threshold for highly compensated employees to the annualized value of the 90th percentile of weekly wages of all full-time salaried employees ($122,148 per year).
The DOL is accepting comments on the proposed rules. In addition, other proposed rules may be coming, including rules regarding the duties tests and percentage of time spent on primary duties (this may affect the treatment of managers who also perform some non-exempt work) and rules regarding the treatment of nondiscretionary bonuses and incentive payments toward satisfying the salary test.
Preparing for Change
The proposed regulations are not final and may change. Employers can evaluate how the proposed salary threshold will affect their current classifications of employees, and the employers pay scales, overtime cost estimates, wage budgets, and bottom lines. For example, employers can immediately review current salaries to determine whether and how many exempt employees would fall under the proposed salary threshold and therefore no longer qualify for exemption, the estimated costs of such conversion, and the estimated cost of raising wages to the threshold minimum.
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