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After months of anticipation, the Wage & Hour Division of the U.S. Department of Labor (“DOL”) issued a new proposed rule on June 30, 2015, that will amend the provisions of the Fair Labor Standards Act commonly known as the “white collar” exemptions. Proposed rule. The proposed rule will apply to positions considered “exempt” based on executive, administrative, and professional classifications.

Since President Barrack Obama’s directive to the DOL last year to ensure that “if you work more,” then you get paid more, speculation has run rampant about how the DOL might narrow the exemptions by modifying the duties and salary tests used to establish exempt-status. In particular, much attention was focused on where the DOL would set the minimum weekly salary for exempt employees. That speculation is now resolved with the proposed rule. Currently, most exempt employees must be guaranteed a salary of at least $455 per week or $23,600 annually. The DOL’s new proposal would set the minimum weekly salary for exempt status at $970 per week or $50,440 per year. Under the new rule, the exempt salary level would be indexed to the 40th percentile of weekly earnings for full-time salaried workers.

The proposed salary level does not apply to individuals exempt based on positions as outside sales employees, lawyers, doctors, and teachers.

The proposed rule does not change the duties test – for now. The DOL has asked for comments on the following questions that go directly to the issue of determining duties of exempt employees:
  • What, if any, changes should be made to the duties tests?
  • 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?
  • Does the single standard duties test for each exemption category appropriately distinguish between exempt and nonexempt employees? Should the Department reconsider our decision to eliminate the long/short duties tests structure?
  • 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?
The approach of requesting comments without issuing a rule is unique. It may mean that the DOL will issue additional rules or that the comments will be used to interpret the DOL’s final rule.

WHAT DOES THIS MEAN FOR EMPLOYERS?

Employers will have 60 days to comment on the proposed rule and respond to the DOL’s questions. Following review of the comments, the DOL will likely make some modifications to the proposed rule including, possibly, adjusting the salary level. The DOL will then issue a final rule, which would likely implement the new weekly salary level in 2016.

Although the new rule is not likely to be effective until 2016, the impact on operations could be significant. According to the DOL, the proposed rule could make nearly five million more white-collar workers eligible for overtime pay within the first year of implementation. Employers should not wait to start considering the practical and financial impact the new salary level will have on their operations. Employers budgeting and planning for 2016 must evaluate positions that may be affected by the increased salary level and begin to make (at least preliminary) decisions about how to handle those positions. Employers may be looking at salary increases for employees below the $50,440 annual salary leave. In the alternative, employers may re-classify positions below that minimum level salary as non-exempt. The decision to re-classify a position brings with it additional issues, such as the requirement that formerly exempt employees must track their hours worked and receive overtime compensation. It may also potentially impact benefit issues as well.

While the final rule is still a number of months down the road, it is not too early to start planning now for changes that could have a significant impact on operations.
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