On March 13, 2014, President Obama directed the Department of Labor (DOL) to revise its white-collar exemptions to overtime in the Fair Labor Standards Act (FLSA). The President is concerned many salaried exempt employees are not making enough money. The DOL has proposed regulations to raise the minimum salary for this portion of the country’s workforce. The DOL estimates that 6.3 million white-collar workers are currently being underpaid, and with the new regulations, will be receiving additional money per week. Additionally, 36,000 workers listed as highly paid executives (those making over $100,000/year) will get an increase in pay.
In order to qualify for one of the white-collar exemptions, two tests must be met. First, the employer must pay the employee a minimum required salary. Second, the employee must perform the duties required by the specific exemption. The DOL updated these requirements in approximately 2004.
At this time, the DOL has declined to change its regulations for the duties test. However, the DOL is seeking additional input concerning this issue.
Show Me the Money
All white-collar exempt employees, including administrative, executive, educational, professional and computer exempt employees will be entitled to a minimum salary of $921 per week. This reflects the new proposal which will set the salary level each year at the 40th percentile of weekly earnings for full-time salaried workers. Each year on a certain date, the Secretary of Labor will announce any changes in that minimum salary and employers will have 60 days to get ready for the change. Thus, employers need to be ready to check and see if minimum salary requirements have changed. Generally speaking, what goes up never comes down in the world of the FLSA.
Highly paid executives will also get a raise. This group has a slightly different duties test than other white-collar exempt employees—they must earn a minimum annual salary of $100,000. The new regulations suggest an increase to $122,148. The DOL secretary will review this salary as well, so employers will need to check the Federal Register to see if that wage has increased.
Employers can depend on both legal and congressional challenges to the new regulation going into effect. The comment period is 60 days and the DOL will be under pressure to finalize these regulations quickly. We do know the cost impact to employers is going to be substantial. Employers should consider whether it will be more effective to change salaried employees to hourly employees and pay the overtime when appropriate. Stay tuned—we will keep you advised as the new regulations come into play.
If you have any questions about DOL wage and hour requirements, please contact Madalene Witterholt or any other member of Crowe & Dunlevy’s Labor & Employment practice group.