Proposed Changes to FLSA White-Collar Exemptions

On July 6, 2015, the U.S. Department of Labor publically released proposed changes to the FLSA white-collar exemptions that could have sweeping effects on all employers, large and small. Even though the final regulations will not go into effect until sometime in 2016, employers need to begin their internal assessment and planning now. 

Last week, Davis Wright Tremaine’s Wage and Hour Team hosted a webinar discussing the new rule, its likely impacts, and steps employers can take to be prepared once it becomes effective.

The proposed rule seeks to increase the minimum threshold salary that an executive, administrative, or professional employee must earn in order to qualify for the exemption – from $455 per week to $970 per week. It also proposes to automatically increase the salary level threshold annually. 

As such, the proposed rule will impact any employer with exempt management, administrative, or professional employees making under $50,000 per year – which means many small employers as well as large employers. It will also hit some industries harder than others. For example, hospitality, tourism, retail, and restaurant industries will be hit the hardest, because those industries tend to have a number of lower-earning manager-level employees.

Employers should begin their planning by internally analyzing exempt positions and identifying options to minimize negative impacts on employee relations, direct payroll costs, indirect administrative costs, and general operations. Employers are strongly advised to do these analyses under the guidance of an experienced wage and hour attorney due to the complexity of potential issues and the availability of the attorney-client privilege to protect candid discussions involving legal advice and risk management.

The proposed rule also seeks comments on whether to change the primary duties test. Under that test, employers must establish that the employee’s “primary duty” is in the performance of exempt work – e.g., administrative, executive, or professional duties. The proposed rule asks community members to comment on whether to change that test by setting a minimum percentage amount of time that must be spent performing exempt tasks in order to qualify under the exemption. Finally, the proposed rule seeks comments on whether to include non-discretionary bonuses and incentive payments to count toward a portion of the salary level requirements for white-collar workers.

The 60-day comment period runs until Sept. 4, 2015. After that, the DOL will make final revisions, await clearance by the White House Office of Management and Budget, and then issue the final rule. It is expected that the rule will become effective sometime in 2016.

The DWT Wage and Hour Team previously prepared an advisory discussing the anticipated changes, their practical impact, and strategies for adopting the new rules.