Major Changes to the FLSA “White Collar” Exemptions Coming Soon

The United States Department of Labor (“DOL”) is preparing to publish a final rule updating the criteria used to determine which workers are eligible for minimum wage and overtime pay under the Fair Labor Standards Act (“FLSA”). Under the proposed final rule, nearly 5 million additional workers will be eligible for overtime pay protection because of a 113 percent increase in the pay required to categorize employees as exempt. The rule is currently set to take effect in July 2016.

The FLSA generally requires covered employers to pay their employees at least the federal minimum wage and overtime pay of one and one-half times the employee’s regular rate of pay for all hours worked over 40 in a work week. The FLSA exempts from both minimum wage and overtime pay protection ‘‘any employee employed in a bona fide executive, administrative, or professional capacity . . . or in the capacity of outside salesman . . .).’’ These categories are commonly referred to as the “white collar” exemptions.

The FLSA requires that each of three tests be met for the exemptions to apply: (1) the employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the ‘‘salary basis test’’); (2) the amount of salary paid must meet a minimum specified amount (the ‘‘salary level test’’); and (3) the employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations (the ‘‘duties test’’).

The proposed final rules would raise the required minimum salary for exempt employees from $23,660 per year to approximately $50,440 per year. The required minimum salary for exempt highly compensated employees would increase from $100,000 to $122,148. The final rule would also provide for automatic updates to the salary levels to keep up with inflation.

With these proposed changes, the DOL estimates that 4.6 million currently exempt workers could become entitled to minimum wage and overtime protection under the FLSA. Those most likely to be affected by the change in the rules are first-level managers who otherwise meet the criteria for being exempt from overtime requirements, but will become non-exempt as a result of the increase in the required minimum salary.

Because the proposed final rule will significantly increase the minimum salary and deem millions of employees non-exempt, it is critical that employers conduct an assessment of their current employees’ FLSA classifications in advance of the passage of the final rule in order to remain in compliance.