May 14, 2015

By David Warner

In March 2014, President Obama ordered the Department of Labor to “update” the federal regulations controlling what workers may be considered “exempt” from the overtime requirements of the Fair Labor Standards Act. Last week, Secretary of Labor Tom Perez mentioned in a blog post of his own (https://blog.dol.gov/2015/05/05/rewarding-hard-work/) that the DOL had submitted its proposed regulations to the Office of Management and Budget (OMB) for approval.

The draft regulations will not be available to the general public until a notice of proposed rulemaking is issued, which may occur in a few weeks (assuming OMB and DOL have been in informal discussions during the development of the proposed regulations) or may not occur for several months. Given the potential economic and operational ramifications of modifications to the rules surrounding exempt status and entitlement to overtime pay, it is expected that the debate around the proposed changes will be rancorous.

It is impossible to forecast exactly what DOL has put forward. That said, it is widely anticipated that there will be a significant proposed increase to the level of salary needed for a worker to be considered exempt. The current required salary of $455 per week (or $23,660 per year) was set in the 2004 revisions; and, prior to that revision, the required salary rate had remained fixed at $155 per week since 1975. If the proposed rules merely index the $155 rate to inflation since 1975, the required salary would rise to $610 per week (or $31,720 per year). If the DOL decides to “go full California” the required weekly salary would rise to $800 per week (or $41,600 per year), which will be equal to that state’s minimum exempt salary level as of January 1, 2016.

It is also expected that the DOL may modify the “primary duty” analysis to require that exempt executive employees spend the majority of their working time performing exempt duties. In contrast, under the current rules time spent performing exempt duties is an important factor, but it is not dispositive to the analysis. Rather, determination of an employee’s primary duty is based on all the facts in a particular case, with the major emphasis on the character of the employee’s job as a whole.

While the revisions to the FLSA regulations may be “moving at the speed of government,” they are in fact moving for the first time in more than a decade, and employers of all type are well counseled to keep abreast of the proposed changes, to participate in the notice and comment process, and to be prepared to comply with the upcoming “new normal” in the none too distant future.

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