On June 30, The U.S. Department of Labor issued long-awaited proposed changes to overtime pay rules. If implemented, the proposed rule would increase the minimum salary for exempt status and make millions more workers eligible for overtime. This article explains the current requirements, as well as the path the proposed rule needs to take in order to become a final rule that could go into effect in 2016 or later.

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Proposed DOL Rule May Make Millions
More Eligible for Overtime Pay

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In his 2015 State of the Union Address last January, President Obama said
employees should get the overtime they've earned. He then directed the U.S.
Department of Labor (DOL) to review and amend the overtime rules under the
Fair Labor Standards Act (FLSA) to make more workers eligible.
On June 30, the DOL took steps in that direction, proposing to significantly
change the federal overtime rules. However, the path from the proposed rule
to a final rule could take several months — and could be derailed.

3. Current Overtime Rules
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Overtime pay is defined as one-and-one-half times an employee's usual pay
rate for hours worked exceeding 40 per week. Today, for employees to
beineligible, they must meet a three-part "white collar exemption."

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To be exempt from overtime pay, an employee must generally meet the
following requirements:
1. Be paid a predetermined and fixed salary.
2. Be paid above a specific salary threshold, currently $455 a week ($23,660
for a full-year worker). The threshold was last increased in 2004.
3. Primarily perform executive, administrative, or professional duties, as
defined in DOL regulations.

5. It All Goes Back to the Fair Labor Standards Act
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The FLSA was enacted in 1938 and is described
by the DOL as a "landmark law in the nation's
social and economic development." It set the
minimum hourly wage (at that time, 25 cents)
and the maximum work week (then 44 hours)
and provided child labor protections. Its
provisions cover most, but not all, public and
private sector employees.
According to the DOL, the reason the FLSA did not provide overtime for some
individuals "was premised on the belief that the exempted workers earned
salaries well above the minimum wage and enjoyed other privileges, including
above-average fringe benefits, greater job security, and better opportunities
for advancement, setting them apart from workers entitled to overtime pay."

6. What Is Being Proposed?
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Under the DOL proposal, the salary threshold for the white collar exemption
would increase to approximately $970 a week ($50,440 for a full-year worker)
and would be adjusted annually. The exact amount is estimated in the
proposed rule because it relies on Bureau of Labor Statistics compensation
data that may need to be updated by the time the rule change would take
effect in 2016 or later.
If the increased exemption in the proposed rule is finalized, the DOL estimates
that nearly 5 million workers will become newly eligible for overtime pay.
The DOL is also proposing to set the "highly compensated employee annual
compensation level" at $122,148 (from $100,000) for retirement plan
discrimination testing purposes. This amount would also be adjusted annually.

7. Designed to "Restore Effectiveness"
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The purpose of raising the salary
threshold, and making it annually
adjustable, is to "restore the
effectiveness of the salary test" and to
"ensure that the Fair Labor Standards
Act's intended overtime protections
are fully implemented," the DOL
stated.
The DOL explained that the changes
seek "to update the salary level test to
ensure that the FLSA's intended
overtime protections are fully
implemented, and to simplify the
identification of overtime-eligible
employees, thus making the white
collar exemptions easier for employers
and workers to understand.”

8. Job Duties Test
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Here are some basic principles that guide job status determination for three
categories of white collar jobs, taken from a DOL Wage and Hour Division fact
sheet.
Executive exemption:
• The employee's primary duty must be managing the enterprise or
managing a customarily recognized department or subdivision of the
enterprise.
• The employee must customarily and regularly direct the work of at least
two or more other full-time employees or their equivalent.
• The employee must have the authority to hire or fire other employees, or
the employee's suggestions and recommendations as to the hiring, firing,
advancement, promotion or any other change of status of other
employees must be given particular weight.

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Administrative exemption:
• The employee's primary duty must be the performance of office or non
manual work directly related to the management or general business
operations of the employer or the employer's customers.
• The employee's primary duty must include the exercise of discretion and
independent judgment with respect to matters of significance.
"Learned professional" exemption:
• The employee's primary duty must be the performance of work requiring
advanced knowledge, defined as work that is predominantly intellectual in
character and work requiring the consistent exercise of discretion and
judgment.
• The advanced knowledge must be in a field of science or learning.
• The advanced knowledge must be customarily acquired by a prolonged
course of specialized intellectual instruction.

10. What Other Changes Might be Ahead?
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The proposed modifications to the overtime pay rule are significant, but many
related questions remain that may soon be addressed. Here are a few:
The Job Duties Test. The proposed rule did not tamper with the job duties
test. However, the DOL states that it is "seeking comment on whether the
standard duties tests are working as intended to screen out employees who
are not bona fide white collar exempt employees."

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Inclusion of Bonuses. The DOL will consider whether "nondiscretionary
bonuses, such as certain production or performance bonuses," should be
added to an employee's salary to determine eligibility or exemption from
overtime pay requirements.
Working on Electronic Devices after Hours. When it first announced that it
was examining overtime rules, the DOL was asked to determine whether
employees should be compensated for time spent on devices such as
smartphones and laptops, doing work after hours. The DOL didn't tackle that
question in the proposed rule but stated it would ask for input on the topic in
coming weeks.

12. What Happens Now?
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There's a 60-day comment period for businesses and other interested parties
to provide feedback to the DOL. The proposal immediately triggered criticism
from some employer and industry groups. For example, the National Retail
Federation, the National Restaurant Association and the U.S. Chamber of
Commerce issued statements that they oppose the changes. These and other
groups argued that increased overtime costs may force employers to cut back
on workers' hours, limit opportunities for employees and negatively affect
businesses.
For its part, the DOL said it would finalize the proposed rule "only after
reviewing and considering all the comments" it receives. Given the stakes,
opponents are likely to not only comment but to urge Congress — and
perhaps take legal action — to modify, delay or drop the proposal. We'll keep
you updated.

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