DOL Plans to Double Minimum Salary for Overtime-Exempt Employees to $50,440

Author: Michael Cardman, XpertHR Legal Editor

June 30, 2015

The minimum salary for an employee exempt from the overtime requirements of the Fair Labor Standards Act (FLSA) would rise to $50,440 under draft rules proposed today by the US Department of Labor (DOL).

An additional 4.6 million workers who are currently overtime-exempt will become eligible for overtime unless their employers raise their salaries, the DOL estimates.

The minimum salary would be adjusted each year by a method yet to be determined.

Either it would be set at the 40th percentile of earnings for full-time salaried workers across the nation or it would be adjusted based on the rate of inflation. The former approach would keep the proportion of employees who are FLSA-exempt fairly constant over time, while the latter would keep exempt employees' buying power constant over time, according to the DOL.

In an op-ed published by the Huffington Post, President Obama framed the proposal as a way of ensuring hard work is rewarded.

"Right now, too many Americans are working long days for less pay than they deserve," the president wrote. "That's partly because we've failed to update overtime regulations for years -- and an exemption meant for highly paid, white collar employees now leaves out workers making as little as $23,660 a year -- no matter how many hours they work."

The Society for Human Resource Management (SHRM) expressed concern that the higher salary minimum would "disproportionately affect the non-profit and service sector industries, as well as certain geographic areas of the country."

To qualify for one of the white-collar exemptions from the FLSA's overtime requirements, an employee must pass three "tests" by:

1. Being paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the "salary basis test");
2. Being paid a salary that meets a minimum specified amount, currently $23,660 (the "salary level test"); and
3. Having job duties that primarily involve executive, administrative or professional duties (the "duties test").

In addition, highly compensated employees who are paid at least $100,000 per year need to perform only one exempt duty to qualify for an FLSA overtime exemption. The proposed regulations would raise the minimum compensation for highly compensated employees to $122,148 and adjust it annually.

The DOL is also considering whether to permit nondiscretionary bonuses and incentive payments to count toward a portion of the minimum salary level. Several employers told the DOL that bonuses are a key part of exempt employees' compensation in their industries and contribute to an "ownership mindset."

The proposed regulations do not include a "bright-line duties test," as the DOL had been considering. Such a test would have required that employees spend a certain proportion of their time, say 50 percent or more, performing exempt duties to qualify for an overtime exemption. However, the DOL specifically asked the public to comment about whether changes to the duties test are warranted - suggesting that it may yet add a duties test before issuing a final rule.

The public (including employer groups) will have 60 days from the time the proposed regulations are officially published in the Federal Register to comment on the proposed regulations. Information about the procedures for submitting comments can be found at the DOL's NPRM page.

After the comment period ends, the DOL will respond to comments and possibly make revisions before publishing a final rule. This final rule will formally take effect 60 days after publication.

Note: The draft regulations state that the new salary level would be $47,892. However, the DOL projects that figure would rise to $50,440 when the final rule takes effect in 2016.