Release of proposed changes to the long-awaited FLSA white collar exemptions

On June 30, 2015, the U.S. Department of Labor (DOL) finally unveiled its long anticipated proposed rule that had been in the queue since 2004. The revisions had been prompted by President Obama’s March 13, 2014 memorandum to the Secretary of Labor, stating that the exemptions “have not kept up with our modern economy” and which “direct[ed] [the DOL] to propose revisions to modernize and streamline the existing overtime regulations.” Post the issue of the memorandum, the agency began writing proposed regulations and completed drafting the same by May 5, 2015. As required by Executive Order 12866, it was then submitted to the Office of Management and Budget for review.

The Fair Labor Standards Act (FLSA) generally requires employers to pay their employees a minimum wage, currently $7.25 per hour, as well as an overtime premium for hours worked in excess of 40 per week. It however exempts certain categories termed as the “white collar” workers—inclusive of certain executive, administrative, and professional employees—from its minimum wage and overtime requirements. These employees generally must meet the current minimum salary threshold of $23,660 and satisfy various “duties tests”. Those earning less, are automatically subject to the FLSA minimum wage and overtime pay requirements and do not qualify for any exemption. These exemptions have been part of the FLSA since its enactment and the federal regulations interpret them. See 29 C.F.R. Part 541.

The rule, if enacted, will raise the minimum salary threshold requirement to qualify for exemption from the FLSA’s minimum wage and overtime requirements. In figures, the increase will be $455 per week ($23,660 per year) to $970 per week ($50,440 per year). It also seeks to increase the threshold for exemption as a “highly compensated employee” (HCE) from $100,000 to at least $122,148. Both these increases will be on an annual basis, as a result of which 4.7 million workers would be affected. Though the DOL did not include any specific proposals to change the “duties tests” applicable to the “white collar” exemptions, it is considering switching to a quantitative test while generally inquiring whether any changes are needed.

These changes, when effective will only trigger more activity by private litigants as well as federal and state agencies. It would however, pose a risk for those employers who have failed to conduct any classification audit in the past several years, for whom a worker classification based on their (1) status (whether exempt or overtime-eligible), and (2) the effect on its workforce shall be required.