Chicago associate Philip Barrett recently authored an article which was published in the Illinois Bar Journal. The article, titled “FSLA Rule Proposal Could Make Millions Eligible for Overtime,” examines the proposed regulations issued by the Department of Labor that would replace current managerial-level and highly-compensated employee exemptions from overtime compensation under the Fair Labor Standards Act.
Some takeaways from the article:
If an employee works longer than forty hours in a workweek, the Fair Labor Standards Act (FLSA) requires an employer to compensate the employee at a rate of one and one-half times the regular rate. However, the FLSA exempts employees in a “bona fide executive, administrative, or professional” capacity from its overtime compensation and minimum wage requirements.
In order to qualify as exempt, an executive, administrative, or professional employee must earn above a compensation threshold. The U.S Department of Labor has recently proposed to increase this compensation threshold from $23,360 per year to roughly $47,892 per year. The rule actually proposes to tie the threshold to the fortieth percentile of earnings for full-time salaried employees in the U.S., and adjust annually. The DOL has also sought to increase the minimum salary requirement for “highly-compensated employees” to the 90th percentile of full-time salaried employees, which is currently at $122,148 annually.
Although the final rule has not been issued and its impact is not clear, it is obvious that employers could see increased costs. For example, the DOL estimates that approximately 21.4 million currently exempt employees could be affected and that employers will incur a total of $592.7 million in direct costs as a result in the first year alone. Employers may need to reassess their employee’s duties and compensation structure. Although the proposal noted that employers may reduce the regular rate of pay and eliminate overtime hours, Title VII implications could arise if an employee believes the employer has a discriminatory purpose. The proposed rule will have a significant impact on the employment landscape and careful employer monitoring and compliance will be crucial in managing the costs that flow from these regulations.
The DOL did not propose a change to the duty requirements for exempt employees. The proposed rule, however, left open for comment whether these requirements should be changed and asked specifically whether the DOL should adopt California’s requirement that an exempt employee not spend more than 50 percent of his or her time performing non-exempt work.
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