Law@Work

As long-time readers of this blog may recall, since 2015, the U.S. Department of Labor  has been trying to update its Fair Labor Standards Act  regulations to qualify more employees for overtime pay. For basic exemptions, meaning those that are not industry-dependent such as the administrative, executive and professional exemptions, employers may generally classify as exempt from overtime pay only employees who meet both a duties test and a salary test.  Since 2004, federal law allowed employers to designate salaried workers who earn at least $455/week (the equivalent of $23,660/year) and meet certain “white collar exemption” duties-test requirements as exempt from overtime.  This month, the DOL issued a proposed rule to increase that salary exemption to $679/week (equivalent to $35,308/year).  If adopted, salaried employees who meet an applicable duties test and earn more than $455/week but less than $679/week will no longer be exempt from overtime under the basic exemptions.  Importantly, the DOL proposed rule will allow employers to use nondiscretionary bonuses (for example incentive bonuses tied to productivity or profitability) and incentive payments (including commissions) that are paid at least annually to satisfy up to 10 percent of the salary test.  The DOL is also proposing to increase the exemption that applies to highly compensated employees.  Currently, salaried employees who earn at least $100,000/year in salary are exempt from overtime regardless of whether they satisfy the applicable duties test.  Under the proposed rule, the highly compensated employee salary threshold will increase to $147,414/year, meaning employees paid less than that threshold amount will be subject to a duties test or other exemption.  The proposed rule does not seek a change to any of the duties tests for the basic exemptions.

Savvy employer takeaways: Employers need to evaluate their payroll to identify salaried employees who meet the applicable duties test but may no longer be exempt and assess whether increasing the employee’s salary or making the employee overtime eligible makes more sense.  Employers also need to consider applicable state law, which may be more restrictive than the exemptions permitted under the FLSA.