New FLSA Standards for Exempt Status await Public Comment | DCR Workforce Blog

New FLSA Standards for Exempt Status await Public Comment

actIn a prior blog, we questioned whether the proposed changes to the Fair Labor Standards Act (FLSA) would see the light of day, given the political environment. These changes would set new standards for exempt status for certain “white collar” workers, protect the rights of home care workers, and simplify the language used to explain these rules. Now, all doubts are set to rest because the Department of Labor (DOL) has hosted the proposed new law on its web site. The DOL estimates that the proposed rule could impact the minimum wage and overtime protections of about 4.6 million workers who are currently exempt from overtime when the final ruling possibly becomes effective next year.

The FLSA requires employers to pay minimum wage and overtime pay (one and one-half times the employee’s regular rate for hours worked over 40 in a workweek) to employees. But, under extant guidance, the FLSA also put in place a number of exemptions from the minimum wage and overtime pay requirements.  Workers in certain executive, administrative/professional or computer roles paid at least $455/week ($23,600/year) on a salary basis were considered exempt, ineligible for overtime pay. The proposed changes recognize that many of these workers who earn salaries on the lower end of the minimum salary threshold are often “low level” managers or clerical employees who work alongside hourly employees, often work long hours, and only have marginally more responsibility than their overtime-eligible coworkers.

Here is a quick peak at what the proposed rule expects of employers:

  • Beginning in 2016, an employee who is currently earning less than $24.25 per hour ($970 per week/ $50,440 per year) would be eligible for overtime pay. The current level at which a salary is exempted from overtime pay is $11.37 per hour, which is lower than the minimum wages prescribed by some states.
  • Employers will need to start identifying all employees who come under the new salary bracket, reclassifying them as non-exempt.
  • Employers will be faced with the need to keep work hours at 40 or less if they wish to avoid abiding by the new law’s requirements and pay overtime at 1.5 times their normal rate of pay for hours worker over 40 in a week.
  • Employers need to review their current processes, and they must also communicate the revised exemption information to all affected employees.
  • The proposed rule raises the salary basis for declaring a highly compensated employee as exempt, provided the employee’s total annual compensation exceeds the ‘annualized value of the 90th percentile of weekly wages of all full-time salaried employees’. To illustrate, this number stood at $122,148/year in 2013).

The proposed limits on exempt salary levels would henceforth not be frozen at a particular level; they would automatically increase every year either by maintaining the levels at a fixed percentile of earnings or be linked to inflation through the changes in the Consumer Price Index for All Urban Consumers.

However, the DOL remains undecided on the primary duties test. The DOL has instituted a 60-day period for public comments, and will consider them before instituting any revisions to the duties test or revamping it entirely. In any case, the new law is bound to create more opportunities for contingent workers, because employers will soon realize the efficacy of using their services to address shortfalls in manpower instead of increasing labor costs through additional overtime pay.

The content on this blog is for informational purposes only and cannot be construed as specific legal advice or as a substitute for competent legal advice. They reflect the opinions of DCR Workforce and may not reflect the opinions of any individual attorney. Do contact an attorney for advice specific to your issue or problem.
Lalita is a people/project manager with extensive experience in operations, HCM and training and development across industries like banking, education, business consulting, BPO and information technology. She believes in a dynamic approach to life and learning as change is the only constant.