The United States Department of Labor (DOL), on June 30, 2015, publicized potential amendments to the Fair Labor Standards Act (FLSA). The most significant change proposes increasing the minimum salary at which an employee is considered an exempt employee and therefore be exempt from the FLSA overtime requirements.
The FLSA states that covered employers must pay their employees at least the federal minimum wage for all hours, as well as paying overtime at 1.5 times the regular rate for any hours over 40 hours worked in a week.
All the way back to 1940, regulations have said that three tests need to be passed in order for an employee to be considered exempt:
1. Salary Basis Test – An employee must be compensated a fixed salary that will not be reduced because of disparities in the quality or amount of work completed.
2. Salary Level Test – The salary paid must meet a stated minimum amount.
3. Duties Test – The duties of the employee must include executive, administrative, or professional duties as per the regulations.
Salary Level Test
Per the current regulations, any employee making less than $23,660/year is considered a nonexempt employee. Under the new DOL proposal, the amount is increased to $47,982/year or less. There are also two mechanisms that have been proposed that would be used for updating the minimum salary on an annual basis. The DOL believes if one of the yearly update mechanisms is enforced, the salary requirement would be $50,440/year in 2016.
As there are no concrete proposals, the DOL is seeking recommendations on whether or not the duties test should be changed. The eligible categories described in the duties tests include administrative, executive, professional, outside sales, and highly compensated. However, the FLSA does not specify what constitutes any of the employee types. Within the proposal, the only duty currently being examined is the highly compensated employee category as shown below.
Highly Compensated Employees: Currently, an employee that earns more than $100,000 in compensation, spends working hours on one or more exempt duties, and did not partake in manual work could be considered exempt from overtime. The new proposed regulations raises the compensation to $122,148.
The DOL is open for input until September 4, 2015. After this date, the DOL will examine the information gathered and post final regulations.
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