The U.S. Department of Labor Proposes
Changes to the Overtime Regulations
On June 30, 2015, the Wage and Hour Division of the U.S. Department
of Labor used its rule making authority to propose changes to the
existing overtime regulations that President Obama announced would
make "up to five million more people eligible to receive overtime
pay from their employers." The Department is proposing to
update the regulations governing which executive, administrative,
and professional employees (white collar workers) are entitled
to the Fair Labor Standards Act’s minimum wage and overtime
pay protections. The Department last updated these regulations
in 2004, and the current salary threshold for exemption is $455
per week ($23,660 per year). Under the proposed rules,
that amount would go to $970 per week ($50,440 in 2016).
Key Provisions of the Proposed Rule
The Notice of Proposed Rulemaking (NPRM) focuses primarily on updating
the salary and compensation levels needed for white collar workers
to be exempt. Specifically, the Department proposes to:
- set the standard salary level at the 40th percentile of weekly
earnings for full-time salaried workers ($970 per week, or $50,440
annually in 2016);
- increase the total annual compensation requirement
needed to exempt highly compensated employees (HCEs) to the annualized
value of the 90th percentile of weekly earnings of full-time
salaried workers ($122,148 annually); and
- establish a mechanism for automatically
updating the salary and compensation levels going forward to
ensure that they will continue to provide a useful and effective
test for exemption.
The Department is also proposing to automatically
update the standard salary and HCE total annual compensation
requirements to ensure that they remain meaningful tests for distinguishing
between bona fide executive, administrative, and professional workers
who are not entitled to overtime and overtime-protected white collar
In addition, the Department discusses the current duties test and
solicits suggestions for additional occupation examples and requests
comments on the current requirements. Similarly, the Department
seeks comment on the possibility of including nondiscretionary
bonuses to satisfy a portion of the standard salary requirement.
The Department is not proposing specific regulatory changes on
either of these issues at this time.
Since 1940, the Department’s regulations have
generally required each of three tests to be met for one of the
collar exemptions to apply: (1) the employee must be paid a predetermined
and fixed salary that is not subject to reduction because of variations
in the quality or quantity of work performed; (2) the amount of
salary paid must meet a minimum specified amount ($50,440 in 2016);
and (3) the employee’s job duties must primarily involve
executive, administrative, or professional duties as defined by
It should be remembered that this is presently only a proposal
which is subject to review and comment. However, it is expected
that the final rule will be very close to this proposal. The only
viable options for employers is to increase the employee's salary
to the new minimum salary required by the regulations or to convert
a formerly exempt employee to an hourly , non exempt, employee
who would then be eligible for overtime at the rate of time and
one half for all hours worked over 40 in a work week.
Paul Hilton Human Resources Consulting works with our clients to insure that all required documentation is correct and sufficient to successfully defend against a claim to any unemployment compensation commission.
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