In 2014 President Obama tasked the Department of Labor with updating the Fair Labor Standards Act exemptions for minimum wage and overtime standards hoping to “ensure workers are paid a fair day’s pay for a fair day’s work.” The Department of Labor has recently provided the proposed regulations which will result in drastic changes to minimum and overtime pay exemptions
Currently the Department of Labor allows employers to classify employees as exempt from minimum wage and overtime pay based on if an employee meets certain threshold “tests” as follows:
- Salary basis test – this means that an employer must pay an employee the agreed upon salary regardless of how the employee performs his/her job.
- Salary level test – this means that the employer pays the employee a minimum salary as proscribed by the regulations.
- Employee duties test – this means that the employer must have the employee perform specific job duties as proscribed in the regulations.
Currently, minimum wage and overtime exemptions exist for employees classified as an executive, administrative or professional employee (“white collar”). To qualify for this exemption, the employer must pay the employee at least $455 per week and $23,660 per year (salary basis/salary level test) and the employees primary job duty must include the exercise of discretion and independent judgment with respect to matters of significance (employee duties test). Another exempt group is highly compensated employees. To qualify for this exemption, the employer must pay the employee at least $100,000 a year (salary basis/salary level test) and the employee has to perform office or non-manual work as well as customarily perform an exempt job duty of a white collar worker (Employee duties test). Overtime exemptions exist for other employee classification as well.
The proposed regulations do not overhaul the current exemption classifications or even remove any part of the threshold tests. The regulations focus on drastically changing the salary level tests. Under the proposed regulations, the white collar employee salary minimum would raise to a minimum $921 per week or $47,892 per year. This new salary represents the 40th percentile rate of earning for full-time salaried employees. The highly compensated employee salary would raise to a minimum $122,148.00 which represents the 90th percentile rate of earnings for salaried employees. Further, the Department of Labor would like to fix the percentile calculations at the above mentioned rates, effectively allowing the minimum salary requirement to raise each year automatically.
The Department of Labor believes that raising the salary level will serve two purposes. First, employers will have to pay their exempt employees a significantly increased salary or employers will be forced to pay employees overtime wages. Second, this increased salary will relieve confusion for employees making minimal salaries who are questioning whether they fit under the employee duties test. If this proposed regulation is implemented, then the Department of Labor expects nearly 4.6 million workers to become eligible for overtime pay because they are currently classified as exempt by their employers but are making less than $921 weekly. The Department of Labor additionally expects that raising the salary exemption will remove uncertainty of classification for nearly 6.3 million white collar workers.
It will be important to stay informed regarding the proposed regulation as it will have a drastic impact on many employers. Please do not hesitate to contact a member of the Udall Shumway PLC, employment law team if you have any questions.
This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice regarding Drastic Changes to Minimum and Overtime Pay Exemptions, or any other personal injury, please feel free to contact Employment Law Attorney Brad Gardner at 480.461.5323, log on to udallshumway.com, or contact an attorney in your area. Udall Shumway PLC is located in Mesa, Arizona and is a full service law firm. We assist Individuals, families, businesses, schools and municipalities in Mesa and the Phoenix/East Valley.