Legal Updates


Employers Are One Step Closer To Final Rules For Exempt Employees Under The Fair Labor Standards Act

October 5, 2015

Update on the Rulemaking Process

The U. S. Department of Labor (“Department”) will not extend the original 60 day period that was provided for interested parties to offer comments on the Department’s proposed salary rules for exempt employees under the Fair Labor Standards Act (“FLSA” or “Act”).  U. S. Wage and Hour Administrator David Weil has notified members of Congress of the Department’s decision that the original 60 day comment period was found to be sufficient, based on the agency’s past experience and its “extensive outreach program,” including “listening sessions” that accompanied the process for reviewing the proposed rules.  Consequently, the comment period was closed on September 4, 2015 and the Department will now proceed with finalizing its minimum salary and compensation rules for exempt employees. 

Background

The FLSA provides that employees must be paid a minimum wage and overtime pay at a rate of not less than one and one-half times the employee’s regular rate of pay for hours worked in excess of 40 hours in a workweek.  In addition, in certain circumstances, an employee of a state or local government agency can be provided with compensatory time off at a rate of not less than one and one-half hours for each overtime hour worked, instead of cash overtime pay. 

The FLSA also provides that certain types of employees are exempt from these requirements, including employees holding executive, administrative, professional, or outside sales positions, and employees whose employment involves specified levels and types of computer usage.  However, an employer must provide a minimum amount of weekly compensation to these employees if the employer wants to treat them as exempt under the FLSA (although one notable exception to this rule is that the Act’s salary and salary basis requirements do not apply to bona fide teachers).  Under the current minimum salary rule, the amount that must be paid to preserve employees’ exempt status is $455 per week. 

The Department’s proposed rule sets the minimum salary for exempt employees at the 40th percentile of weekly earnings for full time salaried workers.  This means that the minimum weekly earnings for exempt employees would be $921 per week or $47,892 annually if the rule is implemented in 2015, but would increase to $970 per week in 2016.  The Department’s proposal would also establish a mechanism for automatic updates of minimum salary and compensation levels for exempt employees.  The Department maintains that increasing the minimum salary level to the 40th percentile of weekly earnings “is the simplest method for securing the effectiveness of the salary level as a bright-line for ensuring that employees entitled to the Act’s overtime provisions are not exempted.”

The Department did not make specific proposals to modify the current “duties tests”; the standards that are used to determine if an employee is, in fact, exempt as, e.g., an “executive,” “professional,” or “administrative” employee.  However, the Department did seek comments on whether the duties tests are working as intended to identify truly exempt white-collar employees.  As a result, it is possible that the final rules will modify the duties tests for exempt employees in some way and that, therefore, employers will need to reevaluate certain employees’ job duties if they wish to preserve their exempt status.

Conclusion

Many commentators view the shorter 60 day comment period and the Department’s refusal to extend it as a sign that the formal announcement of the final rules is imminent.  Past experience indicates that we might expect the new rules to issue at least by the end of the 2015 calendar year. 

This means that employers will need to identify their exempt employees, confirm their exempt status, and determine whether that status would change under the new rules.  If at least some employees’ exempt status would change, employers should then determine which of several strategies are most appropriate, including accepting the rules’ effect without making any responsive changes, establishing an hourly rate that is consistent with employers’ needs for the affected positions (while otherwise accepting the positions’ new status as non-exempt), or increasing affected employees’ salaries to preserve the exemptions that have been in place historically.

The Department’s proposed changes do not necessarily impose new costs on employers all by themselves.  However, the new rule will certainly require that employers consider their exempt employee population and make informed decisions about their job duties and compensation.  Doing so will help to ensure that any impact that the rule might have is well understood instead of accidental, and that penalties for any failure to satisfy the mandates of the FLSA are avoided. 

For questions regarding this article, please contact the author, Attorney Kirk D. Strang (email: kstrang@strangpatteson.com; telephone: 844-626-0906 toll free), or your Strang, Patteson, Renning, Lewis & Lacy, s.c., attorney.

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