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DOL Announced PROPOSED changes to the FLSA Exemption Rules
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On June 30, 2015, the Department of Labor announced its proposed changes to the FLSA rules that determine when an employee is exempt from wage and hour laws. Here is a summary of these proposed changes:
- Increase the salary threshold from $455 per week ($23,660 per year) to $970 per week ($50,440). The new salary threshold is based on the 40th percentile of full-time employee income. Note that the proposed threshold could change because it is based on what the DOL currently expects the 40th percentile to be in 2016.
- Allow employers to include non-discretionary bonuses and other non-discretionary incentive income in an exempt employee's total compensation calculation in order to meet the proposed minimum.
- Increase the salary threshold for highly compensated employees from $100,000 per year to $122,148 per year based on the 90th percentile of full-time employee income.
- Create an indexing system that will provide for annual updates to the salary threshold without the need for additional rulemaking. The DOL is currently considering two methods for indexing the salary threshold. The first would tie the salary thresholds to the 40th and 90th percentiles for full-time employee income. The second would provide for increases based on rises in the consumer price index.
- The DOL made no proposed changes to the duties test for exemptions. However, it left open the possibility of making changes to the duties test before the final rules are issued. Specifically the DOL is seeking comments on the following issues:
- What, if any, changes should be made to the duties tests?
- Should employees be required to spend a minimum amount of time performing work that is their primary duty in order to qualify for exemption? If so, what should that minimum amount be?
- Should the DOL look to the State of CA's law (requiring that 50% of an employee's time be spent exclusively on work that is the employee's primary duty) as a model? Is some other threshold that is less than 50% a better indicator?
- Does the single standard duties test for each exemption category appropriately distinguish between exempt and nonexempt employees? Should the Department reconsider the decision to eliminate the long/short duties tests structure?
- Is the concurrent duties regulation for executive employees (allowing the performance of both exempt and nonexempt duties concurrently) working appropriately or does it need to be modified to avoid sweeping nonexempt employees into the exemption? Alternatively, should there be a limitation on the amount of nonexempt work? To what extent are exempt lower-level executive employees performing nonexempt work?
Keep in mind that these are not the final rules. The rules are currently open to comment, and they may change between now and implementation. Currently, the rules are expected to be in place by 2016. EANE will keep you updated on further developments as they become known.
For questions about how these proposed rules may affect your organization's pay practices, contact EANE's Hotline at 877-662-6444.
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