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Tightening of “White Collar” Exemption Rules Is On The Horizon

By Bruce B. Deadman

In March of 2014, President Obama directed the U.S. Department of Labor (DOL) to “modernize and streamline” its regulations concerning who is (and is not) covered under the Fair Labor Standards Act (FLSA) Section 13(a)(1) overtime exemption for executive, administrative professional, and outside salesperson employees. A proposed rule was originally expected in November of 2014, but is now anticipated to be issued in February of 2015.

While no one knows with certainty what the proposed rule will include, the prevailing wisdom is that it will:

  • Include a substantial increase in the minimum salary amount, which has been $455 per week since 2004. For example, a DOL funded study by the Economic Policy Institute recommended more than doubling the salary level to $970 per week, which translates to $50,440 per year. The Center for American Progress, a liberal “think tank”, recently made a similar recommendation. (If the increase was simply an inflation adjustment, the threshold would be about $553 per week in today’s dollars);
  • Establish a hard and fast rule that employees need to be engaged in exempt duties for at least 50 per cent of the time (for more than 60 years the DOL has stated that whether an employee spends more than half of the time on exempt work is “a useful guide” but “not the sole test”);
  • Narrow the duties-related requirements in ways designed to make them harder to satisfy. Employers should expect tougher definitions that eliminate consideration of work performing “independent judgment” with greater consideration to the “degree of responsibility” involving a “high level of competence.”

In short, the likely outcome will be a proposed rule that will significantly reduce the number of employees who can meet the tests for exempt status, and therefore will result in an increase in non-exempt employees qualified to be entitled to overtime pay for hours worked over 40 in any work week. If the predictions are accurate, this rule would have a far greater impact than the 2014 Executive Order regarding increases in the minimum wage for employees of some federal contractors.

Once the proposed rule is published, there will be a comment period (usually between 30 and 60 days). A final rule is expected by year end. It is likely that there will be little difference between the proposed and final rule, and that the final rule will be implemented very quickly. Therefore, employers should begin evaluating their exempt classifications now, or at the latest as soon as the proposed rule is issued, and be prepared to make any necessary changes.

It is also possible that a rule which is perceived by the Republican Congress as overreaching could be legislatively attacked, leading to yet another showdown between Congress and President Obama, or that it would be subject to court challenges.

We will issue additional Client Alerts as matters develop.

Please contact your Davis & Kuelthau, s.c. attorney or Bruce B. Deadman at 920.431.2228 /