Proposed FLSA Regulations Impact Compensation of Salaried Employees
July 1, 2015

On June 30, the United States Department of Labor (DOL) released a 295-page Notice of Proposed Rulemaking (NPRM), seeking public comment on proposed rules amending the Fair Labor Standard Act’s (FLSA’s) “white collar” overtime regulations. The proposed changes will nearly double the salary exemption floor for full-time salaried employees and lay the framework for that floor to rise every year. The proposed rules would also increase the total compensation requirement needed to exempt highly compensated employees (HCEs) from overtime to the annualized value of the 90th percentile of weekly earnings of full-time salaried employees (or $122,148 annually). The proposed rules do not amend the “duties” test for these employees, but did open that test up for comment.

As has always been true, the proposed salary changes would not apply to outside sales employees, lawyers, doctors and teachers as those positions are not subject to any salary test.

What does this mean for you?

If you are an employer with salaried “exempt” employees and you have over $500,000 in annual sales or conduct business in more than one state, you need to prepare for substantial changes by year end.

Under the proposed changes, if you employ salaried employees who make under the proposed $50,440 annual minimum, those employees would have to be compensated for overtime (any time worked beyond 40 hours in a work week), whether they are paid on a salaried basis or not. Employers who fall into this category will need to more rigorously monitor salaried employees’ time in ways they likely have not done in the past—including monitoring employees’ time spent answering emails, texts or phone calls outside of normal work hours. Every minute spent by an employee attending to the employer’s work will need to be accounted for and, if necessary, compensated as overtime.

Further, employers who want to set salaried employees’ compensation above the threshold to avoid overtime need to be aware that this threshold will likely rise every year. Accordingly, an employer will need to raise salaried employees’ compensation as to not fall below the threshold each year.

But what about the “duties” test?

The proposed rules do not change the “duties” test used to determine who is an exempt administrative, executive, professional or sales employee. However, this may change after public comment. Although salaried employees traditionally found exempt under the duties test will remain exempt for now, that may change in the near future. Also, it will be important for employers to be aware that if an employee is exempt under the duties test because they are a manager, the new changes in overtime pay may result in the salaried employees they manage receiving greater compensation than them. This may result in employee conflict and less employees willing to take managerial positions.

We will continue to monitor the progress of these proposed rules and will distribute an update once the rules are finalized. If you have any questions in the interim, please contact your Davis & Kuelthau attorney or the co-author, Bruce B. Deadman at 920.431.2228 / bdeadman@dkattorneys.com.

Authored by Lance K. Spaude, summer associate, and labor and employment attorney and Of Counsel, Bruce B. Deadman.

 

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