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United States Department of Labor Proposed Rule Will Extend Overtime Protection to Nearly 5 Million Americans with White Collar Jobs

on Tuesday, 7 July 2015 in Labor & Employment Law Update: Sarah M. Huyck, Editor

The United States Department of Labor’s (“DOL”) has proposed a rule that will significantly increase the number of employees who are entitled to overtime protection under the Fair Labor Standards Act (“FLSA”).

The FLSA requires employers to pay employees at an overtime rate, i.e. one and a half times their regular rate of pay, for any hours worked over 40 in a workweek. However, some categories of employees are exempt from this overtime requirement. Currently, under the FLSA’s White Collar Exemptions, certain employees can be exempt from overtime if the positions in which they work satisfy the following requirements:

(1) the position is salaried, meaning they are paid a predetermined and fixed amount that is not subject to reduction because of variations in the quality or quantity of work performed (“salary basis test”);
(2) the primary job duties of the position qualify as “executive,” “professional,” or “administrative” duties, as defined by the DOL’s regulations (“duties test”); and
(3) the weekly compensation for the position is $455, or $23,660 annually (“salary level test”).

Additionally, the FLSA provides an exemption for “highly compensated employees” whose total annual compensation is $100,000, or greater.

The DOL’s proposed rule seeks to raise the required salary level for the White Collar Exemptions, increase the total annual compensation requirement needed to exempt highly compensated employees, and establish an automated system that updates the salary and compensation levels going forward to ensure that the exemptions function as intended.

Specifically, the proposed rule seeks to more than double the weekly compensation from $455, ($23,660 annually), to $970, ($50,440 annually), and increase the threshold for highly compensated employees from $100,000 to $122,148 annually, when the rule is implemented. The proposed rule’s salary standard is set at the 40th percentile of weekly earnings for full-time salaried workers, utilizing the Bureau of Labor and Statistics’ 2013 data.

Currently, the proposed rule does not alter the FLSA “duties test,” but the DOL has requested comments on whether the current duties tests are successful in filtering out employees who should not be considered exempt under the White Collar Exemptions. In addition, the DOL states that any questions or concerns regarding compensation for the use of electronic devices by overtime protected employees during non-work hours is outside the scope of this rule. However, in August of 2015, the DOL will publish a Request for Information (“RFI”) on this issue. Finally, the proposed rule does not affect doctors, teachers, lawyers, and other certain employees; these positions have never been subject to the salary basis or salary level requirements.

The changes discussed above are just proposals and are not yet in effect. The DOL anticipates the proposed rule will take effect in 2016. Nevertheless, the proposed changes, unless drastically scaled back prior to implementation, will have substantial effects on employees and employers. For employees, the proposed rule will extend overtime protection to approximately five million white collar workers who are currently not entitled to overtime because of the existing salary threshold. For employers, the proposed rule will substantially extend employers’ obligations to compensate qualified employees for overtime work. Employers’ human resources budgets will need to be reviewed to estimate the potential impact of this proposed overtime rule.

The proposed overtime rule was published on the Federal Register on Monday, July 6. Any interested parties may comment on the proposed rule at under Rule Identification Number (“RIN”) 1235-AA11.

Allison D. Balus

Sean Nakamoto, Summer Associate

1700 Farnam Street | Suite 1500 | Omaha, NE 68102 | 402.344.0500

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