Caldwell & Kearns Employment Law Client Alert

DEPARTMENT OF LABOR ANNOUNCES NEW PROPOSED OVERTIME RULES

On June 30, 2015, the Department of Labor announced new proposed overtime rules aimed at expanding the number of employees eligible for overtime pay and decreasing the number of employees that qualify for an exemption under the Fair Labor Standards Act. It is important to note that these are merely proposed rules, and have not taken effect yet. There will be a 60 day period in which the public will submit comments to the DOL. After that comment period it will likely take until late 2015 or early 2016 for the proposed rules to go into effect.

Proposed Rules

Under the current rules, in order to be exempt from minimum wage and overtime requirements, an employee must make more than $455 per week, which equates to $23,660 per year. The proposed rule seeks to increase the minimum to meet the so-called white-collar exemptions1 to $921 per week, equating to $47,892 per year. Going forward the minimum an employee may earn to remain exempt will be set at the 40th percentile of weekly earnings for all full-time salaried employees.

Additionally, the current rules allow for an exemption from minimum wage and overtime laws for employees earning $100,000 per year, which is also known as the "highly compensated employee" exemption. The proposed rule will increase the minimum amount for the exemption to $122,148 per year, which will be tied to the 90th percentile of weekly earnings for all full-time salaried employees.

Not only will the proposed rule will ensure that the minimums for both the white-collar and highly compensated employee exemptions increase, it set them to fluctuate based on the appropriate percentile of weekly earnings for all full-time salaried employees.

And if that wasn't enough, the DOL is looking to change the test for determining whether an employee's "primary duty" is performing exempt job duties and responsibilities. Presently, courts use a multi-factor test that is applied on a case-by-case basis. However, the DOL is proposing a more quantifiable test, like setting a specific percentage of time an employee must spend of their day or week performing exempt duties.

Options Moving Forward

The first option is to do nothing for the moment. The rules have only been proposed and are not currently in effect. As a result, employers are only required to follow the current rules.

More proactively, employers can look at their current employees and determine if any who are currently exempt would become non-exempt under the new rules. Providing raises to bring the employees above the white collar or highly compensated employee minimums would ensure they remain exempt (provided they spend an appropriate percentage of their time on exempt duties and responsibilities).

Alternatively, employers may cut costs by adopting a policy forbidding overtime work without permission, however, this could have detrimental effects on productivity and employee morale. In addition, forbidding overtime does not fully absolve employers of responsibility to pay overtime, even when it is worked in direct contravention of an employer policy.

No matter what the plan of action, the proposed DOL rules are a great reason to conduct a self-audit. Human resources personnel and employment counsel should review employee job descriptions, actual duties and classifications to ensure that you are currently in compliance and to see what, if any, changes will need to be made under the proposed rules.

For any questions about the effect of the proposed rule, implementing changes to your pay structure or auditing pay practices, please contact Peter Good, Brett Woodburn at (717) 232-7661.


1 The white collar exemptions requiring a minimum salary of $455 per week include bona-fide executives, administrators, professionals (i.e. lawyers, architects and teachers), and computer/IT personnel.