U.S. Department of Labor Proposes Amendments to White Collar Exemption Regulations

On July 6, 2015, the United States Department of Labor published proposed regulations that would substantially increase the minimum salary that must be paid to exempt employees under federal law to $50,440 or more.  The DOL published the Notice of Proposed Rulemaking was published in the Federal Register, opening a 60-day comment public comment period on the  proposed amendments to Fair Labor Standards Act regulations.

Each of the executive, administrative, and professional exemptions currently require an employee be paid a minimum of $455 per week, or $23,660 per year, as a threshold qualification for application of the exemption.  California white collar exemptions currently require a minimum annual salary of $37,440, which will increase to $41,600 on January 1, 2016.  Thus, the salary basis under the FLSA would more than double, and would also exceed levels currently required under California law.

Proposed Increase in Salary Basis Test

The DOL’s proposed amendments to the FLSA regulations would make three substantial changes to existing law with respect to the minimum salary requirements for certain exempt employees:

  • First, for employees subject to the executive, administrative, and professional exemptions, the proposed regulations would require those employees be compensated at a minimum salary level based on the 40th percentile of weekly earnings for full-time workers (based on Bureau of Labor Statistics data).  The DOL projects that the 40th percentile weekly earnings for the first quarter of 2016 will be $970, or $50,440 annually.
  • Second, for employees subject to executive, administrative, professional, and highly compensated employee exemptions, the required minimum weekly salaries would be automatically updated, on an annual basis, based on changes in the Consumer Price Index, with 60 days’ notice each year prior to the annual increase.
  • Third, for employees subject to the highly compensated employee exemption, the proposed regulations would require those employees be compensated at a minimum salary level based on the 90th percentile of weekly earnings for full-time workers.  Projected calculations for the 90th percentile of future weekly earnings would require a minimum salary of $122,148.  (Note that California does not use any equivalent exemption test to the highly compensated employee federal exemption).

DOL Requests Comments on Duties Tests

Although there are no changes to the duties tests in the proposed regulations, the DOL expressed concern that the current duties tests for the exemptions may promote improper exemption of employees performing a disproportionate amount of nonexempt work.  Accordingly, the DOL requested public comment as to whether it should modify the standard duties tests applicable to the exemptions.

The DOL also invited public comment on issues including:

  • Whether employees should be required to spend a minimum amount of time performing exempt work to qualify for an exemption (similar to California’s current standard requiring 50 percent or more of the employee’s time conducting exempt duties);
  • Whether the DOL rules should reinstate the long and short tests that were used prior to 2004 (the last time these regulations were updated);
  • Whether to continue to use the concurrent duties regulation;
  • Whether to permit non-discretionary bonuses and incentive payments to count toward a portion of the salary test; and
  • Whether changes should be adopted for computer-related fields.

Next Steps

The DOL’s proposed amendments to the FLSA regulations are not final.  The Administrative Procedure Act’s rulemaking process provides for a public comment period on proposed amendments.  Here, the comment period is 60 days, which is set to close on September 4, 2015.  Sometime after the close of the public comment period, the DOL will draft final regulations.  The Office of Management and Budget’s Office of Information and Regulatory Affairs (“OMB”) will then conduct a final review, approve the regulation text, and publish the final regulation in the Federal Register. This final review process typically runs no more than 90 days, which may be extended by 30 days on a one-time basis.

Thus, the final rule is not expected to be published until late in the year, with an effective date expected to be sometime in 2016.

The proposed regulations are part of a broader effort by the Administration to revamp federal labor and employment standards, which will also include long-awaited guidance on independent contractor classification issues to be issued soon by the Wage and Hour Division.  We will continue to monitor and update on these developments.

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