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July 8, 2015

Proposed Amendments To Overtime Exemptions

On June 30, 2015, The U.S. Department of Labor’s Wage and Hour Division (“DOL”) announced a proposal to amend the “white collar” exemption for executive, administrative and professional employees. Currently, those exempt from overtime include salaried employees who earn more than $23,660 a year ($455 a week), and satisfy certain job duties tests. Highly compensated employees are currently exempt if they earn more than $100,000 a year ($1,923 a week), and satisfy a stream lined job duties test.

Under the proposed rule, covered employees would need to earn a minimum of $50,440 a year ($970 a week), and qualify under certain job duties tests. The proposed salary level reflects an increase equal to the 40th percentile of earnings for full-time salaried workers. Similarly, the highly compensated salary level would increase to equal the 90th percentile of full-time salaried workers weekly earnings. Highly compensated employees would need to earn more than $122,148 a year ($2,349 a week) to be covered under the proposed rule.

In addition to expanding the salary threshold under which salaried employees would qualify for overtime pay, the proposal includes an annual automatic update mechanism for the salary level based off of a fixed percentile of wages or the consumer price index. The DOL asked for comments on the automatic update approach.

The proposed rule did not address any specific changes with respect to the duties of exempt employees. Instead, the DOL asked for comments on what changes should be made to the duties tests for “white collar” exemptions. The DOL’s decision to invite comments to address the duties tests is somewhat unique. Presumably, the DOL will use responses to comments to formulate a final rule. Therefore, it is difficult to predict all changes to the duties tests for white collar employees at this time.

Take Away for Employers

It is important to note that the salary levels, discussed above, are proposals. The final regulation may be different from the proposal as a result of the notice and comment period. It is anticipated that the final rule will not be completed until 2016.

Although not final, it is likely that the salary threshold will be increased to at or near those in the proposed rule. Employers will likely be given a short period of time to comply with the final rule. Therefore, employers should plan ahead and begin to factor these changes into their budget plans for 2016.

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If you have any questions regarding the proposed rule on overtime or related issues, please do not hesitate to contact us.