New "White Collar" Final Rule Issued; Takes Effect December 1, 2016

Updated, September 19, 2017:  The proposed 2016 "white collar" regulations were struck down in federal court, and never went into effect.


Today, the U.S. Department of Labor issued its much-anticipated final rule changing the regulations for the so-called "white collar” exemptions under the FLSA, and significantly increasing the minimum salary level necessary for employees to be properly classified as exempt executive, administrative, and professional employees.

The final rule and its increased salary requirements will take effect on December 1, 2016. The new regulations will:

• Increase by slightly more than double the minimum salary level for exempt “white collar” employees from $455/week ($23,660/year) to $913/week ($47,476/year);
• Raise the highly compensated employee (“HCE”) threshold from $100,000 to $134,004; and
• Automatically update every three years (1) the minimum salary level to the 40th percentile of full-time salaried workers in the lowest income region of the country; and (2) the HCE threshold to the 90th percentile of full-time salaried workers nationally.

No exception is made for small businesses.  The final rule does not make any changes to the duties tests for executive, administrative and professional employees.  The final rule also allows for up to 10 percent of the minimum salary level for non-HCE employees to be met by non-discretionary bonuses, incentives, or commissions, if these payments are made on at least a quarterly basis.

As a practical matter, these changes to the “white collar” regulations mean higher wages to employees, higher wage costs for employers, and likely increased exposure and risk to employers in wage and hour cases.

A "pre-publication" version of the final rule can be found here.

Major Changes to Overtime Regulations for "White Collar" Workers

Authored by John Pueschel

On July 6, 2015, the U.S. Department of Labor (“DOL”) issued proposed new regulations that will significantly change the law governing certain “white collar” workers who are exempt from minimum wage and overtime pay.  All employers need to become familiar with these proposed rules, which may, if they become final, greatly impact wages and overtime pay to workers.  In addition, for those that want to have their voices heard, there is still time (until September 4, 2015) for the public to make formal comments to the DOL.

Under the Fair Labor Standards Act (“FLSA”), which is the federal wage and hour law, some employees may be classified as “exempt” from the Act’s minimum wage and overtime pay requirements.   The most well-known and commonly used exemptions are the so-called “white collar” exemptions applicable to executive, administrative, and professional employees.  The DOL’s proposed rules will change the current regulations to more than double the current minimum salary level for exempt employees, significantly increase the salary level required for employees to be exempt from overtime as highly compensated employees, and automatically adjust that minimum salary level each year to account for the increase in the cost of living. 

As a practical matter, the proposed regulations will mean that fewer employees will meet the requirements to be exempt from overtime (and thus will be entitled to overtime pay), or that employers must pay higher salaries in order for the employees to remain exempt under the FLSA.  Here are the specific changes proposed to the white collar exemptions, which are expected to become effective by 2016:

 

• Increase (by more than double) the current minimum salary threshold (currently    $455 per week, or $23,660 per year) to $921 per week, or $47,892 per year, which will be adjusted annually by DOL.  Assuming the rules become final, the salary level is estimated to be set at $970 per week, or $50,440 per year for 2016.

• Increase the minimum compensation for Highly Compensated Employees (HCE) from its current level ($100,000 per year) to $122,148 per year.

• Create an automatic, annual adjustment mechanism for the minimum salary thresholds for the standard exemption and that for HCE.  (The DOL is asking for public comments to guide its determination to use one or the other of two adjustment mechanisms.)

The DOL states that under the proposed regulations, approximately 4.6 million workers would lose their exemption under the proposed rules (and thus be eligible for overtime pay), unless employers increase their pay.  In terms of economic impact, these changes are significant.  The DOL estimates that the “average annualized direct employer costs will total between $239.6 and $255.3 million per year.”  In addition, the DOL also states that this “proposed rulemaking will also transfer income from employers to employees in the form of higher earnings. Average annualized transfers are estimated to be between $1.18 and $1.27 billion, depending on which of the two updating methodologies is used.”

After a period of public comment, the DOL will publish the final rules, which will be codified as final and binding federal regulations.  It seems all but certain, barring some sort of exceptional set of circumstances, that the proposed rules increasing the salary levels and adding a mechanism for automatic annual increase will become final.

For those who wish to have their voices heard on these proposed regulations, the DOL is accepting public comments until September 4, 2015.  Details for submitting comments are can be found here.

Womble Carlyle Launches Resource Page for Proposed Rules on "White Collar" Exemptions

Updated, September 19, 2017:  Due to the 2016 regulations being struck down by a federal court, we have removed the Resource Page as no longer relevant or accurate.


The last week of February is upon us, and the Department of Labor has not yet issued the highly anticipated new FLSA regulations which will propose changes to the white collar exemptions.  Announced by President Obama nearly a year ago, the proposed rules (which have already been postponed once) are currently scheduled for release sometime this month.  If the FLSA proposed rules become law, they are expected to dramatically change which employees can be classified as exempt, which in turn may significantly impact wages and overtime pay to workers.

Womble Carlyle is pleased to announce a Resource Page to help businesses prepare for these proposed rules, which will be the most significant change to the FLSA in more than a decade.  The Resource Page provides businesses with the latest information and updates on these proposed rules, including background information and references to key materials. 

The Resource Page can found here.

When the proposed rules are finally released, we look forward to offering our analysis and practical recommendations to assist businesses with understanding the proposed rules, and meeting the expected compliance challenges if the proposed rules become law.

Because you are asking . . . DOL Says New Proposed Rule On White Collar Exemptions Under The FLSA Will Be Issued In February 2015

As many of you know, last year President Obama directed the DOL to issue new regulations to “modernize and streamline” the white collar exemptions to the minimum wage and overtime requirements under the FLSA.  (Keep in mind that under federal rulemaking procedures, the DOL will first issue a “Notice of Proposed Rulemaking” and allow a period of public comment before issuing a final rule.)  We have been waiting for the proposed rule so that we can see what changes the DOL has in mind for these key provisions of the FLSA, which are expected to revise the current regulations for the executive, administrative, and professional exemptions.

Initially, the DOL said the proposed rules would be issued last Fall, but the DOL later announced the notice would be delayed.  Currently, the DOL’s expected release date is sometime in February 2015, according to a notice from the Office of Management and Budget.  Like you, we will be watching closely for these highly anticipated rules which (if finalized) are likely to significantly impact workers and businesses.