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Department of Labor Proposal for New Overtime Regulations – The Effect on the Workplace


On June 30, 2015, the U. S. Department of Labor (DOL) issued proposed regulations to the overtime exemptions of the Fair Labor Standards Act (FLSA). The final regulations are expected to be published in late 2016. The proposed changes to the regulations would greatly affect the workplace in three key ways:

  • New minimum salary level to qualify for the white collar exemption standard salary-level test. The current salary threshold is $455 per week, or $23,660 annually. The new minimum salary level would set at the 40th percentile, projected to be $970 per week, or $50,440 annually for 2016;
  • New minimum total annual compensation requirement for highly compensated employees. The current threshold is $100,000 annually. Under the proposed regulations, to qualify for the highly compensated exemption, salary would be set at the 90th percentile of weekly earnings, projected to be $122,148;
  • Proposed mechanisms for automatic updates of standard minimum salary levels.

The DOL also invited public comment on a series of questions related to the duties test, which could signal a major shift to a more quantifiable duties test in the DOL’s final rules. Among these questions were the following:

  1. Should employees be required to spend a minimum amount of time performing work that is their primary duty in order to qualify for exemption? If so, what should that minimum amount be?
  2. Should the DOL look to the State of California’s law (requiring that 50 percent of an employee’s time be spent exclusively on work that is the employee’s primary duty) as a model? Is some other threshold that is less than 50 percent of an employee’s time worked a better indicator of the realities of the workplace today?
  3. Does the single standard duties test for each exemption category appropriately distinguish between exempt and nonexempt employees?
  4. Is the concurrent duties regulation for executive employees (allowing the performance of both exempt and nonexempt duties concurrently) working appropriately or does it need to be modified to avoid sweeping nonexempt employees into the exemption?
  5. Should incentive compensation and nondiscretionary bonuses be considered in determining whether the salary level test has been satisfied?

Based on recent comments from the DOL, we anticipate that final regulations will be published in late 2016 and take effect 30–60 days later. Although final regulatory change is not imminent, companies should consider auditing their current employee population to determine what changes, if any, need to be made to employee classifications and job duties, especially in those positions that are close to the above-mentioned compensation thresholds. This would include an analysis of the payroll practices and record keeping for tracking those employees who may be reclassified as nonexempt. Once the final regulations are published, we plan to issue an updated client alert and will be holding roundtable discussions at various locations in 2016.