On March 13, 2014, President Obama signed a Presidential Memorandum directing the Department of Labor to update the regulations defining which white collar workers are eligible to receive pay for hours worked over 40 hours in a work week. The proposed rule was originally forecast to be issued in November of 2014, but it is now clear that the earliest this rule is likely to be issued is the First Quarter of 2015. Once issued, there will be an opportunity for comments to be submitted. However, based on previous experience, there are not likely to be many changes between the proposed rule and the final rule. Consequently, employers should be looking ahead to the second half of 2015 and subsequent years by budgeting for the anticipated changes the rule will impose in the workplace.
There is much speculation about the changes that are likely to be proposed. However, a recent survey of comments of those closest to the issue is instructive for employers. One should keep in mind that in order to qualify for the white collar exemptions involving professional, executive or administrative level employees, an employer must satisfy tests regarding the employees’ salary and duties. Concerning the salary test, it is almost certain that the new rule will increase the minimum salary threshold level for a white collar exemption. Currently, that salary threshold level is $455 per week or $23,660 per year. A recent study funded by the Department of Labor and prepared by the Economic Policy Institute recommended a salary level of $970 per week or $50,440 per year. Most notably, while the new salary standard may not be set this high when the new Rule goes into effect, certain salary level employees who are currently exempt will no longer meet the minimum salary threshold and will, therefore, become eligible for overtime pay.
It also appears likely that the Department of Labor will modify or adjust certain requirements under the duties tests for some or all of the white collar exempt categories. There are multiple ways these changes could be presented. Commentators suggest that the current duties test for the executive exemption is too easy to meet and will likely be tightened up. One possible area of increased regulation would be greater specificity for the requirement that an executive employee have a “primary duty” that involves “managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise.”
Another frequently litigated area susceptible to increased regulation is the classification of administrative employees. Such employees must currently meet a duties test that includes, among other things, a requirement that the employee’s “primary duty” 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.
Regardless of what changes the Department of Labor proposes, it is imperative that employers recognize the likely financial effect that further regulation of the white collar exemptions will have on their bottom line. Budgeting for such overtime costs is highly advised as businesses put together their 2015 and subsequent year budgets. As the salary and duties tests become tighter, businesses will find themselves spending more on overtime for certain employees who have traditionally been designated as exempt in the administrative, executive and professional categories.
