Up to 4.6 Million Workers Could Be Eligible For Overtime Pay Under DOL Proposed Regulations

Last week, the Department of Labor issued its long-awaited proposed changes to regulations implementing the Fair Labor Standards Act.  These changes affect the “white collar” exemptions that allow employers to treat some management, professional, and administrative employees as exempt from minimum wage and overtime pay and protections. Before treating an employee as exempt from these protections, an employer must make sure that the employee’s duties and salary qualify him or her to be treated as exempt.

The current threshold salary for white collar exemptions is $455 per week, or $23,660 per year.  If these proposed regulations go into effect, that threshold will increase to $921 per week, or $47,892 per year.  The proposed regulations do not include any changes to the duties test that must also be met before classifying an employee as exempt.  The exception for “highly compensated employees,” who can be treated as exempt under a relaxed duties test if their total annual compensation is above a certain threshold, will remain in place with an increased threshold of $122,148 per year.  Oregon wage and hour law does not have this “highly compensated employees” exception so Oregon employers should keep in mind that all of their employees must meet one of the standard administrative, professional, or executive white collar exemptions.

Under the proposed regulations, these threshold salary and compensation levels  would be automatically adjusted in the future.  The current proposed salary threshold is the 40th percentile of weekly earnings for full-time salaried workers and the annual compensation threshold for highly compensated employees is 90th percentile of weekly earnings for full-time salaried workers.

The Department of Labor is seeking comments on its proposed regulations.  One item it seeks comment on in particular is whether to allow employers to include nondiscretionary bonuses to satisfy a portion of the salary tests going forward.  For instance, if an employer pays nondiscretionary incentive bonus based on productivity or profitability levels to management, administrative, or professional employees, those bonuses may be able to be counted towards the total $47,892 salary requirement.  The Department is also seeking comments on whether to automatically update the salary and compensation levels based on the 40th and 90th percentile of earnings for full-time salaried workers or whether to update based on changes in inflation.

An estimated 4.6 million workers currently classified as exempt but who receive a salary less than $47,892 per year would be eligible for overtime after these proposed regulations go into effect, according to the Department of Labor.  The Department also estimates that about 36,000 highly compensated employees receive less than $122,148 per year in annual compensation and would be eligible for overtime. Comments may be submitted until 11:59 p.m. on September 4, 2015.  Please visit the Wage and Hour Division’s webpage for more information about submitting a comment: http://www.dol.gov/whd/overtime/NPRM2015/.

The Saalfeld Griggs Employment Law team will be tracking the progress of these proposed regulations and will provide updates as they move through the rulemaking process.