by Lisa Brauner

Important News:  The US Department of Labor has announced a proposed rule that would raise the automatic overtime eligible salary threshold. As proposed, this would raise the salary threshold for automatically non-exempt workers (i.e., those entitled to overtime pay after working 40 hours per workweek) from $455 a week (the equivalent of $23,660 a year) to about $970 a week ($50,440 a year) in 2016 ($921/week, $47,892 annually before 2016).  In other words, those earning less than $50,440 in 2016—if the proposed rule is implemented—would be automatically entitled to overtime pay at 1.5 times their regular rate of pay after working 40 hours in a workweek.  Those earning an annual salary of $50,440 or more would still need to satisfy the duties tests of the “white collar” exemptions to qualify as exempt from overtime pay.

As noted by the US Department of Labor, “

[t]he 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:

  1. set the standard salary level at the 40th percentile of weekly earnings for full-time salaried workers ($921 per week, or $47,892 annually);
  2. 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
  3. 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 workers. Experience has shown that the salary level test is an effective measure of exempt status only if it is up to date.

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.”

Once the proposed rule has been published in the Federal Register, interested parties can make public comment at www.regulations.gov.   After the public comment period, the proposed rule may be revised or modified and then implemented thereafter.  Note that this proposed overtime exemption salary threshold is even higher than that in New York State (currently the salary threshold is $656.25 per week or the equivalent of $34,125), and it is certainly possible that New York State would enact an even higher threshold than the federal government has done.

In light of this, employers should begin to review with their employment counsel the exempt/non-exempt worker classifications in anticipation of this likely change and consider how it may impact their staffing and overtime costs going forward.

For those interested in more details, including the proposed changes to the highly compensated exemption from overtime, see the following link: http://www.dol.gov/whd/overtime/NPRM2015/

Stay tuned.