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UPDATE: U.S. Department of Labor Releases Proposed Rule to Expand Employee Overtime Eligibility

June 30, 2015 by Brunini Law

UPDATE:  The Department of Labor has established a deadline of Friday, September 4, 2015 for individuals/entities to submit comments on this Proposed Rule.  We do not anticipate the DOL to extend the comment period beyond this date.  If you want to offer your comment, follow the link in the article below, or go to:http://www.regulations.gov/#!documentDetail;D=WHD-2015-0001-0001

Original Newsletter sent June 30, 2015:

On Tuesday, the United States Department of Labor (the DOL) released its newest Proposed Rule that, if implemented, would broaden federal overtime pay regulations to cover 5 million additional workers who are currently exempt from overtime eligibility.  Under the Proposed Rule, the DOL seeks to update the regulations governing which executive, administrative, and professional employees (the so-called “white collar” workers) are entitled to minimum wage and overtime pay protections under the Fair Labor Standards Act (the FLSA).

The FLSA requires employers to pay its “non-exempt employees” overtime (1 ½ the workers’ “regular rate of pay”) for all hours worked in excess of forty (40) per week.  29 U.S.C. § 207.  The DOL’s regulations implementing the FLSA sets forth a variety of employment classifications that are “exempt” from the FLSA’s overtime requirement—including employees performing executive, administrative, and/or professional job duties.  Since the 1940’s, in order for an employee to qualify as an exempt “white collar” employee, he/she had to meet three “tests”:  (1) the employee must be paid a predetermined and 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 (as defined by the regulations).  The DOL last updated these regulations in 2004, setting the current minimum salary threshold at $455 per week (or $23,660 per year).

With its proposed rule, the DOL seeks to update the salary level required for exemption and to identify ways to “simplify” the identification of nonexempt employees.  The key provisions of the Proposed Rule include raising the minimum salary level for exempt employees to $921 per week (or $47,892 annually); and increasing the total annual compensation requirement needed to exempt “highly compensated employees” to $122,148 annually (currently set at $100,000 annually).  In addition, the DOL proposes the establishment of a mechanism to automatically update these salary thresholds going forward in the future, in an effort to keep the thresholds from “becoming outdated” as time passes between rulemakings.

While the DOL also targets the specific duties needed to qualify for an exempt “white collar” employee, the DOL’s Proposed Rule stops short of including actual proposed changes to the duties tests applicable to the white collar exemptions.  Instead, the DOL said it was considering whether changes to those tests were needed and requested comments on the current requirements.

If the Proposed Rule is adopted, the DOL estimates that over 5 million workers who are currently classified as “salaried exempt”—and thus, not eligible for overtime—will become eligible for overtime pay.  Other observers feel the number could rise as high as 10 million.  If implemented, the Proposed Rules will undoubtedly result in greater expense or operational change for many employers as they struggle to deal with a shrinking pool of workers who are eligible for an exemption from the overtime pay.

The Proposed Rule is still subject to a lengthy comment period before implementation.  The DOL encourages interested parties to submit comments on the Proposed Rule via its dedicated website:http://www.dol.gov/whd/overtime/NPRM2015/.

Though the Proposed Rule has not yet been finalized, employers are encouraged to be proactive and engage their legal counsel to begin planning for the change now.  Preparations should include auditing current practices and projecting the cost of change and FLSA compliance under the anticipated new framework. This includes evaluating the possibility and effects of significantly higher operating costs.

This Newsletter is a publication of the Labor and Employment Department of the law firm of Brunini, Grantham, Grower & Hewes located in Jackson, Mississippi. This Newsletter is not designed or intended to provide legal or professional advice, as any such advice requires the consideration of the facts of the specific situation.

IRS Circular 230 Notice

To ensure compliance with requirements imposed by the IRS, we inform you that, unless specifically indicated otherwise, any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any tax-related matter addressed herein.

If you have missed our previous newsletters, please click here.

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