Changes to Overtime Regulations Are Coming

Today the Department of Labor issued a Notice of Proposed Rulemaking that would extend overtime protections to an estimated 5 million white collar workers.  The proposed rulemaking affects the Department’s regulations concerning the Executive, Administrative, and Professional exemptions under the Fair Labor Standards Act, commonly known as the white collar exemptions.

The Fair Labor Standards Act requires to pay overtime at time and a half of an employee’s regular rate of pay for any work over 40 in a week.  The act does exempt certain employees, however, including “any employee employed in a bona fide executive, administrative, or professional capacity.”

The Department of Labor has long employed a two part test to determine if someone works in an “executive, administrative, or professional capacity.”  The first part of the test is a “salary test.”  An employee must receive a fixed salary regardless of the hours worked in a week.  Currently, the salary test is set at $455 per week ($23,660 per year, if the worker works every week in a year).  The second part of the test is a “duties test” which requires that the employee work certain duties described in regulations set forth by the Department of Labor.

The Department’s proposed regulations would set the minimum salary for the exemption at the 40th percentile of weekly earnings for full-time salaried workers, currently $921 per week, or $47,892 annually.  Furthermore, the salary would be updated on a yearly basis to reflect the 40th percentile of weekly earnings.

The Department also seeks comment as to possible changes to the duties test, including a requirement that a certain percentage of time be devoted to the exempt duties (currently, the only requirement is that exempt duties be the “primary” duties of the worker, a test which can be met even if those exempt duties do not take up a majority of the worker’s time).

The “white collar exemptions” are among the most commonly litigated exemptions under the Fair Labor Standards Act.  Often these cases involve individuals who are classified as “managers” and are paid at or above the minimum salary threshold, while working well more than 40 hours in a week.

Although the proposed regulations would require employers to pay more workers overtime, it may actually have the effect of decreasing litigation against employers.  There are still certain employees who will earn the new salary that do not satisfy the “duties” test for an exemption, but raising the salary threshold should eliminate the most abusive scenarios of misclassified managers that often lead to overtime litigation.