On Tuesday, June 30, 2015, in an attempt to “modernize and streamline” the regulations on exemptions from the Fair Labor Standards Act’s (“FLSA”) minimum wage and overtime pay requirements, the U.S. Department of Labor issued a Notice of Proposed Rulemaking (“NPRM)” which focuses primarily on increasing federal overtime pay regulatory coverage to nearly 5 million people by raising the minimum salary threshold required to qualify for the FLSA’s “white collar” exemption. Specifically, the Department proposes to:
- Set the standard salary level at the 40th percentile of weekly earnings for full-time salaried workers ($970 a week; or $50,440 a year) in 2016;
- Increase the total annual compensation requirement needed to exempt highly compensated employees (HCEs) to the annualized value of the 90th percentile of weekly earnings of full-time salaried workers ($122,148 annually); and
- Establish a mechanism for automatically updating the salary and compensation levels going forward so as to ensure a useful and effective test for exemption.
The Department’s regulations have generally required each of the following three tests to be met for the white collar exemptions to apply: 1) the employee must be paid a predetermined, fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed; 2) the amount of salary paid must meet a minimum specified amount; and 3) the employee’s job duties must primarily involve executive, administrative, or professional duties. However, some highly compensated employees are exempt from the overtime pay requirement if they are paid total annual compensation of at least $100,000 (must include at least $455 per week paid on a salary or fee basis) and if they customarily and regularly perform at least one of the exempt duties or responsibilities of an executive, administrative, or professional employee. Although no changes are currently proposed to the duties tests, the Department is seeking comments in the NPRM.