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The Department of Labor proposes substantial changes to the FLSA’s white-collar exemptions

Further information has been made available to the public concerning the proposed changes to the FLSA’s “white-collar” exemptions in the 295 pages of materials released by the Department of Labor yesterday.

In its Notice of Proposed Rulemaking (NPRM), which primarily focuses on updating the salary levels needed for exempt executive, administrative, and professional employees, the Department of Labor proposes the following changes to the current white-collar exemptions:

  • Increasing the standard salary level for such exemptions to the 40th percentile of weekly earnings for full-time salaried employees (this would amount to an estimated salary of $970 per week, or $50,440 per year, in 2016);
  • Increasing the total annual compensation requirement needed to maintain the highly compensated employee (HCE) exemption to the annualized value of the 90th percentile of weekly earnings of full-time salaried employees (or approximately $123,000 annually); and
  • Establishing a mechanism for automatically updating the salary and compensation levels going forward.

In addition to the above, the Department is considering allowing employers to include a portion of nondiscretionary bonuses in meeting the proposed salary-level requirements. In particular, the Department of Labor is considering whether employers may meet up to 10 percent of the salary level requirement through nondiscretionary bonus payments. The Department of Labor believes that such bonus payments should be made on a monthly or more frequent basis to be included in the salary level amount. It does not currently believe it is appropriate to include commissions or discretionary bonuses in the salary level requirement. However, the Department is seeking comments on the appropriateness of including any such forms of additional compensation in the salary level needed to meet the salary-basis portion of the white collar exemptions. 

The Department of Labor also has requested comments on the methodology it should use to automatically update the standard salary level and HCE compensation requirements. Currently, it is considering two approaches: (1) a fixed percentile approach tied to the Bureau of Labor Statistics reports regarding the weekly earning of full-time salaried employees; or (2) an approach that adjusts salary and compensation levels based on changes in the Consumer Price Index. The Department of Labor has requested comments and recommendations on both the methodology it should adopt and on how often such updates should occur.

The Department of Labor currently has chosen not to propose changes to the “duties” portion of the white-collar tests. Nonetheless, it solicits comments on whether such changes should occur, including requesting comments on the following issues:

  • Whether exempt employees should be required to spend a minimum amount of time on exempt work;
  • Whether the Department of Labor should adopt the “California” requirement that more than 50% percent of an exempt employee’s time be spent performing exempt duties;
  • Whether the Department of Labor should reconsider reinstating a long and short duties test (which existed prior to the 2004 regulatory amendments); and
  • Whether the Department of Labor should eliminate the “concurrent duties” rules for executive employees (which currently allow a manager to perform exempt and nonexempt duties at the same time). 

These proposals are substantial and will affect most U.S. employers. Businesses should consider whether they wish to provide comments to the Department of Labor on these proposed changes. Moreover, all employers should carefully follow the developments regarding these proposed rules and plan accordingly.

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