Change on the Horizon for FLSA White Collars
On June 30, 2015, the U.S. Department of Labor (DOL) issued a proposed rule to modify the “white collar exemptions” provided by the Fair Labor Standards Act (FLSA). The white collar exemptions are minimum wage and overtime exception rules for executive, administrative, professional, outside sales and computer employees.
Specifically, the proposed rule seeks to:
- Increase the salary requirements for employees to be considered exempt;
- Implement automatic salary requirement updates; and
- Receive feedback on whether modifying the duties test is necessary at this time.
The DOL estimates that, if implemented, the proposed rule would extend overtime protections to approximately 5 million workers who are currently exempt under the white collar rules and would clarify overtime compensation eligibility for another 6 million white collar workers.
White Collar Exemptions
To qualify for the white collar exemption, an employee must meet three tests:
- The salary basis test is used to make sure the employee is paid a predetermined and fixed salary that is not subject to reduction due to variations in the quality or quantity of work.
- The salary level test is used to ensure that the employee meets a minimum specified amount to qualify for the exemption.
- The duties test requires that the employee’s job duties conform to executive, administrative or professional duties, as defined by law.
Higher Salary Requirements
The proposed rule would increase the current minimum salary level of $455 per week ($23,660 per year) to $921 per week or ($47,892 per year). The proposed new salary level represents the 40th percentile of wages earned by workers across the United States in 2013. Projected data for 2016 would set these numbers to $970 per week and $50,440 per year.
The proposed rule would also increase the $100,000 salary level for highly compensated individuals to $122,148 per year—the 90th percentile of wages earned by workers in 2013.
Impact on Employers
These measures could trigger significant costs. For example, employers may be required to pay overtime wages to previously exempt employees or incur ongoing managerial costs because they would need to monitor more closely the work of employees they didn’t have to monitor before.
On the other hand, the DOL is predicting that higher salary level requirements for white collar exemptions will simplify the process of employee classification because employers would not be required to perform a duties test for employees below the updated salary requirements. This simplification could result in fewer lawsuits and lower litigation costs for employers.
If you have questions while awaiting the fate of this proposed rule, chat with an ‘A’ Team member.
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