U.S. Department of Labor Issues Proposed Regulations That Significantly Increase the Minimum Salary That Must Be Paid To Classify Employees as Exempt From Overtime

June 30, 2015Alerts Labor & Employment Alert

On June 30, 2015, the U.S. Department of Labor (DOL), at the behest of President Barack Obama, published a Notice of Proposed Rulemaking seeking primarily to revise the baseline salary requirements under the federal minimum wage and overtime exemptions. Under the proposed rules, the minimum salary that must be paid to exempt employees will more than double.

Under the proposed regulations, the minimum salary for an employee to qualify for most overtime exemptions would increase from $455 per week (or $23,660 annually) to $970 per week (or $50,440 annually). This proposed change would dramatically increase the number of employees who would be entitled to overtime compensation for hours worked over 40 in a week, even where those employees primarily perform executive, administrative, professional or other exempted “duties” under current regulations. Other position-specific exemptions that do not require a minimum salary, such as lawyers, teachers, medical doctors and outside sales employees, remain unchanged. In addition, the DOL has for the first time also proposed an automatic annual increase to this threshold, either (i) tied to the 40th earnings percentile for all full-time salaried employees, or (ii) based upon the Consumer Price Index for All Urban Consumers (CPI-U). Thus, under the proposed regulations, the minimum salary threshold for exempt status will likely increase every year.

The DOL has also requested comments from the public on whether and to what extent non-discretionary bonuses should be counted toward the above salary threshold. Yet, at this time, the DOL has not issued any proposed regulations on this issue.

Additionally, the DOL has also proposed increasing the minimum salary threshold under the “highly compensated employee” exemption, which carries a much less stringent “duties” test than the other white-collar exemptions. The DOL has proposed increasing the highly compensated salary threshold from $100,000 annually to $122,148 annually. Moreover, the DOL has also proposed increasing the highly compensated salary threshold annually, either tied to the 90th earnings percentile for all full-time salaried employees or based upon the CPI-U. Therefore, again, under the proposed regulations the baseline figure to qualify for the highly compensated employee exemption will likely increase every year.

Finally, the DOL has also requested comments as to whether or not any of the white-collar duties tests should also be revised, including among other things an upward limit on the amount of non-exempt work an exempt employee may perform (e.g., no more than 50 percent of working time) and/or eliminating the “concurrent duties regulation” (which allows the performance of both exempt and non-exempt duties concurrently). However, at this time, no proposed regulations have been issued by the DOL concerning the white-collar duties tests.

It will be some time before the DOL’s proposed regulations are finalized and implemented. However, once implemented, almost all employers will be affected by the increased salary thresholds if adopted in their current form. It is anticipated that these new salary thresholds will significantly affect industries such as retail, hospitality and other service-oriented enterprises that make significant use of the “mid-level” manager job classification. Employers must stay abreast of developments in this regard and ensure their salaried workforce is in compliance with the DOL’s revised regulations.

For more information about this alert, please contact Carolyn D. Richmond at 212.878.7983 or [email protected], Glenn S. Grindlinger at 212.905.2305 or [email protected], Alexander W. Leonard at 212.878.7932 or [email protected] or any member of the firm’s Labor & Employment Department.