Classifying Employees as Exempt from Overtime May Become a Lot More Costly
This week, the Department of Labor announced proposed changes to the white-collar overtime exemptions under the Fair Labor Standards Act ("FLSA"). If enacted, these changes will significantly impact employers. To qualify as exempt from overtime under federal law, employees currently must be paid a salary of at least $455 per week ($23,660 per year) and their "primary duty" must be executive, professional, or administrative -- as those terms are defined under federal law. The proposed regulations enormously increase the minimum salary threshold to $970 per week ($50,440 per year) in 2016. (This increase would make the minimum salary threshold under federal law even higher than that under California law, which currently requires exempt employees to be paid a minimum salary of $37,440.) Notably, current federal law provides that certain "highly compensated" employees qualify for exempt status if they earn a salary of at least $100,000 per year and customarily and regularly perform executive, professional, or administrative duties. The proposed regulations continue the highly compensated employee exemption but increase the minimum salary to $122,148 per year.
Currently, the proposed regulations do not make any changes to the "duties test" for exempt status. However, the DOL is soliciting comments on changes to the duties test, including specifically asking whether the federal duties test should mirror the duties test for exempt status under California law. Scary. As California employers are aware, California's overtime exemptions are much narrower than the federal exemptions, making it more difficult for employees to qualify for exempt status in California. Whereas federal law focuses on whether the employee's "primary duty" is an exempt duty (a qualitative focus), California law requires that the employee spend more than 50% of his or her work time each week on exempt executive, professional, or administrative duties (a quantitative focus). By increasing the minimum salary threshold for exempt status and potentially adopting California's duties test, the DOL's proposed regulations certainly will make it more difficult for employees to qualify for exempt status under the FLSA.