“White Collar” Exemptions to the FLSA in Flux

05.17.2016

Section 13(a)(1) of the Fair Labor Standards Act (FLSA) provides an exemption from the minimum wage and overtime requirements for executive, administrative, and professional employees (white collar workers).  Under the current law, in order to qualify for the exemption, employees must meet certain standards regarding their job duties and be paid a salary of at least $455 per week ($23,660 per year).  Last year the Department of Labor released proposed changes to the white collar exemption from the FLSA.  Specifically, the DOL proposes that the salary threshold be set at the 40th percentile of weekly earnings for full-time salaried employees.  The projected salary level for 2016, when the rule will be issued, is about $970 per week ($50,440 per year).  The DOL has also proposed that the salary threshold automatically update on an annual basis in order to ensure that it remains a meaningful and effective measure of exempt status for white collar workers.  Additionally, the DOL proposes to increase the total annual compensation requirement needed to exempt highly compensated employees.  The goal of these proposed changes to is ensure that the FLSA’s intended overtime protections are fully implemented and to simplify the process for identifying non-exempt employees.

The DOL submitted its final rule revising the white collar overtime exemption regulations on March 14, 2016, meaning the final rule will be published in the Federal Register this spring—sooner than expected.  The fast-tracking of the rule is likely explained by election year politics.  After publication, Congress has 60 days in which to review the rule before it takes effect.  During this period, Congress may attempt to nullify the regulation by voting on a resolution of disapproval.  But such a resolution can be defeated by presidential veto.  Thus, the sooner the rule is on the books, the better President Obama’s chances of ensuring its implementation.

The key takeaway for employers is that changes to the white collar exemption could go into effect as early as this summer.  Employers should prepare now for an increase in the threshold salary level, meaning they should be evaluating all white collar employees who are earning between $455 and $970 per week to reassess exempt status.  For those currently exempt employees who are reclassified as non-exempt, employers will need to decide on pay rates and overtime budgets.  The new exemption rules may necessitate hiring additional employees, reorganizing job duties, and/or outsourcing certain tasks.  Importantly, employers must be careful to mitigate against the risk of “off-the-clock” claims by newly reclassified employees—a risk that is sure to increase with the reclassification of large groups of employees.  Although the exact language of the final rule is still unknown, the time to plan is now.