Regulations & Compliance

Proposed FLSA Changes

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Late last month, the White House unveiled proposed changes to Fair Labor Standards Act rules governing overtime. The intent of the proposed rule changes appears to be to prevent employers from extending the exemption from overtime rules to lower-level managers. In light of this, there are some key points to consider.

The proposed rule would raise the minimum salary threshold for overtime exemption eligibility from the current $455 per week ($23,660 per year) to a projected amount of $970 per week ($50,440 per year). For the highly compensated employee (HCE) exemption, the minimum salary threshold currently set at $100,000 per year would be raised to $120,000.

In addition, the proposal recommends indexing the minimum salary threshold “to guard against erosion.”  For this, the Department of Labor is requesting input as to whether the index be fixed to a percentage of earnings or the consumer price index.

The Department of Labor left open the question as to whether the duties test in the current regulations be revised. The exempt status of a position is determined by the essential duties and functions of the position.

For a position to qualify for the exemption, it must meet the criteria set forth by the FLSA (aka the “substantive duty test”). However, there has always existed some room for interpretation in determining how much of an individual’s job must be spent on these criteria in order to qualify for an exempt status.

To be clear, the rules have only been proposed to this point; they were published July 7 by the Federal Register for review and comment. However, they could create a substantial increase in payroll expenditures, so it’s important to determine how many individuals within your organization could be affected. Now is the time to begin reviewing job descriptions and compensation policies to be sure information is current and correct.