February 26th, 2016

By:  Nicole D. Lindsey and Heather Rooney McBride


The Department of Labor (“DOL”) has issued proposed rulemaking that would update the regulations governing overtime eligibility under the Fair Labor Standards Act (“FLSA”).  The DOL last updated the regulations in 2004, and the current salary threshold for exemption is $455 per week ($23,660 per year).  With the proposed rule, the DOL seeks to update the salary level required for exemption from overtime to ensure that the FLSA’s overtime protections are fully implemented and to simplify the identification of nonexempt employees so that executive, administrative, and professional exemptions are easier for employers and workers to understand and apply.


The key provisions of the new rule focus primarily on updating the salary and compensation levels needed for white-collar workers to be exempt.  Specifically, the DOL proposes to:

  1. Set the standard salary level of weekly earnings at the 40th percentile for full-time salaried workers – $921 per week ($47,892 annually);
  2. Increase the total annual compensation requirement needed to exempt highly compensated employees to the annualized value to the 90th percentile of weekly earnings of full-time salaried workers ($122,148 annually); and
  3. Establish a mechanism to automatically update the salary and compensation levels going forward.


The DOL suggests the proposed increase in the standard salary level will minimize the risk that employees legally entitled to overtime will be subject to misclassification based solely on the salaries they receive, without excluding from exemption an unacceptably high number of employees who meet the duties test.[1]  In addition, the DOL is proposing to automatically update the standard salary and highly compensated employee compensation requirements to ensure they remain meaningful tests for distinguishing between bona fide executive, administrative, and professional employees who are not entitled to overtime and overtime-protected white collar workers.


What will this mean for employers?  Raising the salary limit for individuals eligible for overtime pay from $23,660 per year to $50,400 per year will make millions more U.S. workers entitled to overtime pay and will encompass occupations as diverse as graphic designers and business analysts.


Additionally, the new DOL rules could replace the current “primary-duties test” with what is known as the “California Test,” which says that someone who spends more than 50% of his or her time on non-exempt tasks is eligible for overtime pay even if her main job is generally considered exempt.  Currently, a retail store manager who stocks shelves, arranges displays, and assists customers for some of her working hours still qualifies as a manager, and is thus exempt from overtime pay, because her main job is to manage other employees.  Under the proposed “California Test,” if the same retail store manager spends more than half of her time stocking shelves, arranging displays, and assisting customers, she may be entitled to overtime under the new rule, whether or not her salary meets the new threshold.


Analysts expect lawsuits about overtime to increase to about 9,000 in 2016, which is an 8% increase over the 8,160 such actions brought against employers in 2015[2], because the classification question is riddled with gray areas.  The new rules are expected to come out in the summer of 2016.



[1]              The DOL relied upon 2013 data in the development of the proposed rulemaking, under which the 40th percentile of weekly earnings for full-time salaried workers was $921 per week.  It is projected that the salary level will be $970 per week ($50,440 per year) in 2016.

[2]              http://fortune.com/2016/01/06/overtime-lawsuits-rules/; Federal rule changes expected in July could create a “perfect storm.”