Department of Labor Proposes New Overtime Regulations: DOL Proposes Substantially Raising Salary Thresholds Used in Determining Who Is Exempt from Overtime Pay and Requests Comments on Potential Changes to the Current Regulations Defining the Duties Required to Qualify for Exemption

Sullivan & Cromwell LLP - July 1, 2015
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Yesterday, the Department of Labor proposed long-awaited revisions to its overtime regulations.  The new proposed rules were issued in response to President Obama’s directive to the Secretary of Labor in March 2014 to revise existing overtime regulations, with the express purpose of increasing the number of workers who qualify for overtime payments.

The proposed rules seek to increase the number of employees who are eligible for overtime by significantly increasing the salary thresholds for exemption.  Currently, the rules exempt certain categories of employees who earn more than $455 per week ($23,660 per year) and perform certain “primary duties.”  The proposed rules increase the basic salary threshold to the 40th percentile of earnings for full-time salaried workers ($951 per week, or $49,452 per year, as of the first quarter of 2015).  In a similar vein, the proposed rules increase the highly compensated exemption threshold (above which the standards for determining exemption are more easily achieved) to the 90th percentile of earnings for full-time salaried workers ($122,148 annually).  Finally, the proposed rules seek to index the compensation thresholds for inflation, either by maintaining the levels at a fixed percentile of earnings or by updating the level based on changes in the Consumer Price Index.  Although the proposed rules do not contain changes to the detailed duties tests that are applied to employees whose compensation is above the threshold levels, the notice requests comment on whether modifications to the duties tests should be adopted and the Department of Labor seems to be claiming the right to adopt changes to the tests in its final rule, without having sought or received comments on the specifics of what they adopt.
 
The net effect of the proposed rules is to expand considerably the number of employees who are subject to the overtime requirements of the Fair Labor Standards Act.  The Department of Labor estimates that, if the proposed rules are adopted, more than 4.6 million additional workers would become entitled to overtime compensation.

The Department of Labor is seeking public comment on its proposals.  The due date for comments will be set upon publication of the notice in the Federal Register, which is imminent.  The comment period will likely be 60 days, and thus the comments could well be due soon after September 1.  Details on the deadline and the methods for filing will be available at the Department’s web site, http://www.dol.gov/whd/overtime/NPRM2015.  Comments can be filed at www.regulations.gov.  After the close of the comment period, the Department of Labor will review and respond to comments before publishing the final regulations.  Thereafter, Congress may choose to disapprove the rules, subject to the President’s veto power.  All told, any rules are unlikely to be final until 2016.