The Wage and Hour Division of the Department of Labor (DOL) has recently released proposed changes to the salary threshold for overtime exemption. Under the current Fair Labor Standards Act (FLSA), in order for an employee to be considered “exempt” (meaning they are not required to be paid overtime for working more than 40 hours per week) the employee must be paid a salary of at least $455 per week. The new proposed rule would increase this salary figure to approximately $970 per week, or $50,440 per year. The new figure was set at the 40th percentile of current exempt salary employees. The proposed rule also states that the salary threshold would be adjusted annually based on the 40th percentile of wages paid each year.
It’s estimated that nearly 5 million salary employees would need to either be reclassified as nonexempt (and be paid overtime for hours worked over 40 hours per week) or receive an increase in pay to bring their wage above the new threshold. The Society for Human Resource Management (SHRM) has issued a statement which says “It is clear that this rule will affect nearly every employer in every industry and sector.”
A second factor in determining whether an employee can be classified as exempt is a “duties test” which lists the types of work an employee must perform in order to be classified as exempt (for example, managing at least two full time employees). The proposed rule does not include any changes to the duties test at this time.
It’s worth repeating that this is just a proposed rule – it is not yet law and there is no effective date for these changes at this time. The DOL will publish the proposed new rule to the Federal Register soon and the public will have 60 days to comment on the proposed rule. It’s estimated that the changes won’t go into effect until sometime in 2016.
With a more than 200% increase proposed, employers will likely need to closely analyze their current exempt employees to see what types of adjustments may need to be made in the future if the proposed rule becomes law. At this time, employers do not need to make any changes to the salary of exempt employees – but be prepared to make changes when the final rule is released.
The full text of the proposed rule can be found by clicking here.