New Federal Overtime Regulations Expected to Be Published in Next Few Months
Last year, the Department of Labor (“DOL”) published proposed regulations overhauling the federal white collar overtime exemptions. In its proposed regulations, the DOL proposed increasing the minimum salary to qualify for exempt status (under the white collar exemptions for administrative, executive, and professional employees) from $23,660 per year to approximately $50,440 per year, and increasing the minimum salary to qualify for the highly compensated employee exemption from $100,000 per year to approximately $122,148 per year. These proposed amounts are not certain because they are based on the 40th and 90th percentiles, respectively, for wages earned by salaried full-time workers according to U.S. census data. These were the figures the DOL projected for 2016. The DOL also proposed automatic annual increases to the minimum salary threshold.
The DOL said that it was considering whether non-discretionary bonuses could be counted in determining whether an employee’s compensation meets the minimum salary threshold. The DOL also said that it was considering whether changes should made to the “duties” test for exempt status and, more specifically, whether California’s “quantitative” test (which requires an employee to spend more than 50% of his/her time on exempt duties in order to qualify as exempt) should be adopted to replace the “primary duty” test currently in place under federal law. The DOL did not propose any specific changes to the duties tests, but simply said that it is considering changes and invited comment on this topic.
The DOL received scores of comments on the proposed regulations, but it is unclear how, if at all, the comments will impact the content of the regulations as proposed. Late last year, the DOL indicated that it intended for a final rule implementing the regulations to be published in July 2016. Just last week, the DOL sent the final rule to the Office of Management and Budget (“OMB”) to review. This is the final step in the required process before publication. OMB review typically takes 2 months, so it is likely that the final overtime regulations will be published by July (and possibly as early as May or June). The content of the final rule will not be made public until OMB review is complete and the rule is published.
Within days of the DOL sending its final rule to the OMB, GOP lawmakers introduced legislation to block implementation of the DOL’s final rule, suggesting it is void due to lack of sufficient analysis of its impact on the business community, and that proposed automatic increases to the annual salary and changes to the duties test cannot be made without the DOL first going through the formal notice and comment rulemaking process. Of course, as long as President Obama remains in office (with veto power), the chance of this legislation succeeding is close to zero.
Given the likely implementation of new federal overtime rules in the next few months, employers should begin reviewing their exempt classifications with the expectation that the new minimum salary thresholds will be in the neighborhood of those reflected in the proposed regulations and that there may be changes in the duties test that could impact the exempt classification of employees who spend significant time performing non-exempt tasks in addition to their exempt duties.