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Rule Changes Proposed for Overtime Exempt Salaried Workers

The Department of Labor (DOL) has released proposed rules to update the white-collar exemptions from overtime, which would apply to nearly 5 million employees who work in executive, administrative, professional, outside sales, or computer positions.

According to current regulations, the salary threshold for overtime exemption is $455 per week ($23,660 per year). The proposed rule would set the standard salary level at the 40th percentile of weekly earnings for full-time salaried workers ($921 per week, or $47,892 annually). The Department also proposes to 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.”

Since 1940, the Department of Labor regulations have required each of three tests to be met for one of the Fair Labor Standards Act’s white collar exemptions to apply: first, the salary basis test, that employees must be paid a fixed salary that is not subject to reduction because of variations in the quality or quantity of work (hourly workers generally don’t qualify as white-collar employees).

Second, the salary level must be a certain amount: in 1975, that level was the salary of 65% of all white-collar workers. When it was next updated in 2004, the rate was set at $23,660—a level below the poverty threshold for a family of four. With an annual salary level raise from $23,660 to $50,440, employees currently working overtime without compensation would be eligible to overtime pay. An example often cited is that of convenience store managers, fast food workers and some office workers who do the same work as other employees but also handle paperwork during uncompensated overtime.

The third test determining eligibility for overtime exemption is the duties test, which is different for each exemption that might apply. For example, the duties test for the executive exemption is different than the duties test for the administrative exemption.

The Department of Labor encourages interested parties to submit comments on the proposed rule, on or before September 4, 2015 via the website at http://www.dol.gov/whd/overtime/NPRM2015/ .

The full text of the proposed rules can be found in the July 6 Federal Register [80 FR 38516].