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U.S. Dept. of Labor to Revitalize Overtime Protection for Employees

The Fair Labor Standards Act (FLSA) guarantees eligible employees a minimum wage and overtime pay for hours worked in excess of 40 in a work week. However, there are a number of exemptions to that guarantee. The "white collar" exemption contained in 29 C.F.R. 541 is based in part on a minimum salary level, with those exceeding it potentially being exempted from FLSA overtime protection. More than a decade has passed without any change in the minimum salary level, while at the same time the federal minimum wage has increased. This has resulted in certain low-paid salaried employees finding themselves without overtime protection. In March 2014, President Obama directed the U.S. Department of Labor to update FLSA regulations, and in particular the "white collar" exemption, in order to modernize and simplify the regulations while maintaining the FLSA's intended overtime protections.

In July 2015, the U.S. Department of Labor, Wage and Hour Division, ("DOL") published its proposed rule seeking to update the "white collar" exemption. This exemption concerns executive, administrative, professional, outside sales, and computer employees. It exempts those who satisfy minimum tests related to their job duties and salary level. In other words, employees considered exempt under this regulation are not guaranteed a minimum wage or overtime pay under the FLSA.

In order to qualify for the "white collar" exemption, the employee must (1) be paid a fixed salary not subject to reduction based on work quality or quantity, (2) have job duties that are primarily executive, administrative or professional in nature, and (3) receive a salary that meets a minimum specified amount. Proposed amendments to this last requirement, also known as the "salary level test", have caused a stir. The DOL has proposed raising the minimum salary level to more than double the current rate, generating more than 290,000 comments.

The current minimum salary for the salary level test is set at $455.00 per work week, or $23,660.00 a year, which is below the poverty threshold for a family of four. The DOL has proposed increasing the minimum salary to what would be the 40th percentile of all full-time salaried employees - $921.00 per week, or $47,892.00 annually. Doing so is anticipated to have the intended effect of modernizing regulations by re-establishing the so-called line of demarcation between exempt employees and those who are entitled to overtime protection that has withered away over the years. The thought is this will incentivize employers to hire additional employees instead of having existing employees work overtime, which in turn should decrease unemployment.

The difference between the DOL's current proposed regulatory changes and past amendments is this time the DOL wants to establish a mechanism whereby the salary and compensation threshold is periodically updated automatically. Two methods have been suggested. The first involves an annual update using a fixed percentile of earnings, now 40%, for full-time salaried workers based on the most-recent data published by the Bureau of Labor Statistics. The second suggests updating the threshold based on changes to the consumer price index for all urban consumers, which is a common indicator for measuring inflation.

Specific regulatory language for the updating mechanism has not been drafted; instead the DOL has sought comments on both options, rationalizing that it has not selected which methodology will be used. Although the DOL insists that each of the 290,000+ comments received will be reviewed and analyzed, this has left employers questioning how to best plan, realizing that going forward may include restructuring their workforce and/or reclassifying employees. At this stage, the ball is in the DOL's court, as employers and employees both wait for the rulemaking process to continue.

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