By: Laurie A. Petersen and Samantha J. Wood
As directed by President Obama in March 2014, the Department of Labor (DOL) has issued a proposed rule regarding the Fair Labor Standard Act’s overtime regulations.
The rule focuses primarily on updating salary and compensation levels. It proposes increasing the standard salary threshold level for exempt employees from $455 a week to approximately $970 a week. This increase would set the standard salary level at the 40th percentile of weekly earnings for full-time salaried workers (nationwide) in 2016. While the standard salary level was set at the 20th percentile of weekly earnings for full-time salaried workers in 2004, the DOL states that an increase is necessary to fully account for the simplified duties test that was created in the DOL’s 2004 changes.
The rule also proposes salary increases to the “highly compensated employee” exemption. Currently, the regulations provide an exemption for employees if they earn at least $100,000 in total annual compensation and customarily and regularly perform any one or more of the exempt duties or responsibilities of an executive, administrative or professional employee. The DOL is proposing increasing this figure to $122,148, which would set the salary standard at the 90th percentile of all full-time salaried workers.
Furthermore, the DOL has proposed a mechanism for annually updating the salary and compensation levels going forward. It is considering and is seeking commentary on two possible methodologies: (1) annually updating the thresholds based on a fixed percentile of earnings for full-time salaried workers, or (2) annually updating the thresholds based on changes in the Consumer Price Index for all Urban Consumers (CPI-U).
Despite these drastic changes, the DOL has included a silver lining for employers. The DOL has proposed allowing non-discretionary bonuses and incentive payments, such as bonuses tied to productivity and profitability, to count toward 10% of the standard weekly salary level of $970, for the executive, administrative, and professional exemptions. In order to include the bonuses within the salary, the bonuses would have to be non-discretionary and employees would need to receive the bonuses more frequently than annually (i.e., monthly or quarterly, rather than a yearly “catch-up” payment).
While the DOL is not proposing any specific changes to the standard duties tests, it is seeking commentary to determine whether, in light of the salary level proposal, changes to the duties tests are necessary.
Upon publication of the proposed rule, the public is encouraged to provide commentary through the online portal at www.regulations.gov under Rule Identification Number 1235-AA11. After considering the comments, the DOL will make revisions to its rule and will issue a Final Rule sometime thereafter.
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