DOL Proposes Change To Overtime Exemptions

The U.S. Department of Labor (DOL) has announced a proposed change to its regulations governing overtime exemptions for executive, administrative, professional, outside sales and computer employees. The DOL wants to increase the salary threshold for these exemptions but does not propose any changes to the duties component of the exemptions.

The Fair Labor Standards Act (FLSA) requires most employers to pay employees a minimum wage and, for employees who work more than 40 hours in a week, overtime premium pay of at least 1.5 times the employee’s regular rate of pay. The FLSA exempts from the minimum wage and overtime pay requirements “any employee employed in a bona fide executive, administrative, or professional capacity.”

This exemption is commonly referred to as the “white-collar” or executive, administrative, or professional (EAP) exemption. The DOL’s regulations generally require that an employer be able to meet each of the following three tests in order to avail itself of the EAP exemption: (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 (the salary basis test); (2) the amount of salary paid must meet a minimum specified amount (the salary level test); and (3) the employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations (the duties test).

Under the current regulations, an executive, administrative, or professional employee generally must be paid at least $684 per week (equivalent to $35,568 annually for a full-year employee) to be exempt from overtime under the FLSA. The DOL wants to increase this amount to $1,059 per week ($55,068 annually) for executive, administrative, professional and computer employees. The exemption for highly compensated employees, who receive total annual compensation of $107,432 or more, would also be increased to $143,988 per year. Finally, the DOL proposes a mechanism to allow these earning thresholds to automatically update every 3 years.

Employers need to carefully consider these significant increases in salary thresholds and determine whether certain exempt employees should be reclassified as hourly workers. Additionally, as the DOL’s proposal makes its way through the rulemaking process over the next several months, this is an excellent time to audit those positions classified as exempt to ensure the job duties test can be met and determine whether and how a new salary threshold can be met. KZA attorneys can help you with this analysis and any changes that need to be made. 

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