DOL ISSUES PROPOSED NEW OVERTIME REGULATIONS

On June 30, 2015, the U.S. Department of Labor (DOL) issued its proposal for revisions to Fair Labor Standards Act (FLSA) regulations addressing overtime compensation. These proposed regulations come on the heels of comments made on Monday (June 29) by President Obama regarding proposed changes to overtime regulations.

Under the FLSA, non-exempt employees are entitled to time-and-a-half compensation for all hours over 40 worked in a particular work week. One threshold for determining whether employees may be considered exempt from overtime compensation is the "salary basis" test. As it currently stands, an individual must make more than $455 per week ($23,660 per year) in order to be considered exempt under the FLSA.* The new DOL proposal would instead set this threshold at the 40th percentile of earnings for all full-time salaried employees in the United States. By way of example, in 2013 that figure would have been $921 per week ($47,842 per year). It is estimated that, when these new regulations go into effect in 2016, that number will be $970 per week ($50,440 per year).

In addition, the new DOL regulations propose to alter the exemption for highly compensated employees (HCE), which is currently set at a threshold of $100,000. Moving forward, the HCE threshold would be set at the 90th percentile of earnings for all full-time salaried workers. For 2016, it is estimated that this figure will be $122,148.

These changes will have a substantial impact upon overtime compensation for U.S. workers. Think about the number of individuals who are currently considered exempt employees but who earn less than $50,000 per year; by and large, those individuals will now be considered non-exempt and will be entitled to overtime compensation under the FLSA. In fact, it is estimated that the salary basis modification will affect 4.6 million U.S. employees in 2016 alone, and that the HCE modifications will affect 36,000 employees.

Finally, note that the new DOL proposal would not constitute a single, one-time change. Instead, the DOL is proposing a mechanism by which these figures are readjusted annually to reflect the 40th percentile and 90th percentile of all full-time salaried earnings, respectively. As such, this figure would continue to increase automatically each year.

It was also anticipated that the DOL would also propose changes to the way in which the "duties test" is evaluated for purposes of determining whether an employee meets the administrative, executive, or professional exemptions under the FLSA. As of this date, however, no such proposal has been made. Instead, the DOL is seeking comments as to whether the current "duties test" is working effectively; comments will be accepted from the public for the period ending 60 days after the proposed changes are published in the Federal Register (which has not happened yet). Employers wishing to evaluate whether to comment on the current effectiveness of the duties test may contact Evans Harrison Hackett PLLC for additional guidance. 

* Note: An employee who meets this standard is not automatically considered exempt. The employee must also meet the requirements set forth under the "duties test" to determine whether the job duties performed by the employee constitute exempt functions.

If you have questions about this Employment Law Alert or wish to discuss the impact of this decision upon your business, please do not hesitate to contact Maury Nicely at Evans Harrison Hackett PLLC, 423/648-7851 or mnicely@ehhlaw.com.