Proposed Changes to Federal Overtime Laws: Are You Prepared?

The U.S. Department of Labor’s (“DOL”) regulations related to “white collar” overtime exemptions under the Fair Labor Standards Act ("FLSA") have been in place since 2004. Last year, the DOL issued proposed regulations that could drastically change the exemptions and create a significant burden on unsuspecting employers. Given the high likelihood that new regulations will take effect within the next few months, employers should take immediate action to assess the potential impact that the changes may have on their operations.

The proposed regulations are expansive. They more than double the minimum salary level needed to qualify for the exemption, raising it from $23,600 to a projected $50,440 per year, and they prescribe automatic increases to prevent it from diminishing from inflation.  The regulations also include an increase in the minimum salary threshold for highly compensated employees, raising the minimum from $100,000 to $122,148 per year and adjusting it automatically to a level equal to the 90th percentile of earnings for full-time salaried employees. The DOL has also indicated it may consider changes to the job duties tests, likely making the requirements more stringent than they are now. The Economic Policy Institute estimates that 13.5 million employees will directly benefit from the new regulations, and the DOL estimates that an additional 4.6 million currently exempt employees will be entitled to overtime protection. Affected employers will likely be forced to choose between increasing certain employees’ wages or declassifying exempt employees and paying them overtime when needed.

In March 2016 (and despite vigorous objection from certain employers and opposition groups), the DOL submitted its proposed final rule to the Office of Management and Budget. In response, lawmakers in the House and Senate introduced the Protecting Workplace Advancement and Opportunity Act (the “Act”). The Act seeks to prevent the DOL from finalizing the proposed final rule, while requiring it to perform a full assessment of the economic impact of the rule. Despite the introduction of the Act, the final rule is nevertheless expected to be published and take effect within the next few months.

Although the final version of the rule may be modified slightly, employers should immediately enlist the assistance of their human resources and compliance partners (or qualified internal staff) to ensure they are prepared.  For example, employers should audit their payroll records to determine which employees are exempt under current law and determine which ones will not meet the new salary threshold.  Employers should also audit employees’ job duties and confirm that salary exempt employees are performing a sufficient amount of managerial tasks under the current law (as stated above, the proposed regulations do not directly address the job duties tests, but changes may be forthcoming). After completing a comprehensive analysis, employers should determine how their organizations will handle affected employees and how it will impact their bottom line.

Author: Robyn Rusignuolo, Chief Legal Officer/VP of Human Resources