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August 27, 2015

The United States Department Of Labor Issues Proposed New Fair Labor Standards Act Regulations

On July 6, 2015, the United States Department of Labor ("USDOL") announced new proposed Fair Labor Standards Act ("FLSA") regulations regarding overtime pay. The FLSA establishes overtime and minimum wage pay, amongst other requirements, for qualifying employees in the private sector and in Federal, State, and local governments. These employees must be paid overtime pay at a rate of at least one and one-half times their regular rate for hours worked beyond 40 in a workweek. The FLSA contains "white collar" exemptions that exclude certain executive, administrative, and professional employees from federal minimum wage and overtime requirements. For a white collar exemption to apply, an employee's specific job duties and salary must meet all of the applicable requirements provided in the USDOL's regulations.

The proposed regulations would affect the white collar exemptions contained in the FLSA. The proposed regulations would raise the standard salary level for an employee to fall within a white collar exemption from its current $455 per week ($23,660 a year) to $921 per week ($47,892 a year). (New York State's current salary basis threshold is $656.25 per week). The USDOL has not decided whether to allow nondiscretionary bonuses, such as certain production or performance bonuses, to satisfy a portion of the standard salary test requirement.

The current regulations contain a relaxed duties test for certain highly compensated employees ("HCE") who are paid at least $455 per week and receive total annual compensation of at least $100,000. However, the proposed regulations would raise the HCE annual compensation level from $100,000 to $122,148. An estimated 36,000 employees may become eligible for overtime and minimum wage due to this change.

The USDOL claims that the salary and HCE level tests are a strong measure of an employee's exempt status only if they are up to date. As a result, the USDOL is seeking to implement one of two methods to automatically update the salary and HCE levels on an annual basis. The first method would keep those levels pegged to the 40th and 90th percentiles of earnings for full-time salaried workers, respectively. The second method would adjust the levels based on changes in inflation, as measured by the Consumer Price Index for all Urban Consumers.

The proposed regulations will clarify the overtime requirements for approximately 11 million workers who earn below the proposed salary threshold and their employers because their entitlement to overtime pay can be determined solely on the basis of the proposed bright line salary threshold. Further, the USDOL estimates that average annualized direct employer costs will total between $239,600,000 and $255,300,000 per year, depending on the updating methodology.

The proposed regulations do not change the job duties test to determine whether an employee qualifies for a white collar exemption. However, it is possible that the final rule may still incorporate changes to the job duties test.

If you have any questions about the content of this alert please contact the Barclay Damon attorney with whom you normally work or any attorney in our Labor & Employment Practice Area.


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