GET READY! Proposed Federal Overtime Regulations Are Out, and You’d Better be Prepared

The U.S. Department of Labor (DOL) has released its long-awaited proposed changes to the Fair Labor Standards Act (FLSA) regulations containing the “white-collar” exemptions to the minimum wage and overtime requirements. Many employers have been anxiously awaiting the proposed regulations because early indications were that the new rules will make many employees who are currently exempt from overtime no longer exempt. The proposed regulations are here, and as usual, they are a mixed bag for employers. Good news Let’s start with the good news, the changes have not yet taken effect. The DOL issued what is known as a “Notice of Proposed Rulemaking,” which contains the proposed changes to the overtime rules. There was a 60-day period for the public to comment on the proposed rules. During that time, various groups had the opportunity to give the DOL input on the regulations. The department then reviews the comments it receives and decides if it needs to make changes to the rules. The DOL may take several months to revise the rules after the comment period ended, and it typically gives notice before regulations take effect. Thus, the regulations likely will not take effect for some time, and employers will have a chance to prepare for them. In additional good news for employers, the DOL left the duties tests for the exemptions unchanged. Both the duties test and the salary basis test must be met for an exemption to apply. The duties tests pertain to the tasks an employee must spend her time doing to be considered exempt. Many employers expected the DOL to modify one or more of the duties tests. At least so far, the DOL has not. While there is a chance the duties tests could be changed, the fact that the DOL did not make changes in the proposed regulations is good news for employers. Bad news The bad news for employers: The DOL plans to drastically raise the minimum salary required for employees to be exempt from $455 per week to $921 per week. That means that employees must be paid a salary of at least $921 per week in order to be exempt. Under the current rules, an employee who earns a salary of $23,660 per year will be exempt if the duties test is satisfied. Under the proposed rules, the same employee will have to make $47,892 to be exempt. The DOL estimates the change will make five million workers eligible for overtime. In addition, the DOL has proposed automatic increases in the minimum salary so that the salary requirement would go up without DOL action. The department has also proposed raising the threshold for the “highly compensated employee” exemption from $100,000 per year to $122,148 per year. Bottom line Many more employees will be eligible for overtime as a result of the changes. Although the final rules may be modified, the minimum salary likely will be $921 per week or a similar amount. Employers with exempt employees making less than $921 per week should begin analyzing the financial impact of paying overtime. Employers may have to raise salaries to meet the new threshold, institute timekeeping procedures to track overtime for formerly exempt employees, implement policies to limit overtime, and institute other measures to make sure the changes do not adversely affect them. Although the new regulations will not take effect for some time, savvy employers will be aware of the potential impact and begin planning now. Adapted from an original article written by Brent Siler  We hope this information is valuable to you. If you have any questions, please do not hesitate to contact Holman HR.