Watson Spence: U.S. Department of Labor Makes Major Modification to the FLSA "White Collar Exemption"

Louis Hatcher

Wednesday, June 8th, 2016

"In the first year, the Department estimates that 4.6 million workers exempt under the current regulations who earn at least the current weekly salary level of $455 but less than the proposed salary level of $921 would, without some intervening action by their employers, become newly entitled to overtime protection under the FLSA."

On May 18, 2016, the U.S. Department of Labor ("DOL") exercised its rule-making powers under the Fair Labor Standards Act ("FLSA") to perform a substantial redistribution of wealth and income for many working class Americans. While the rest of the country has been tuned in to the 2016 presidential debates, the Obama Administration - and current DOL regime - have been working "overtime" (no pun intended) to quietly push forward regulations that could drastically change the FLSA's threshold test for certain exemptions. The new regulation is scheduled to take effect on December 16, 2016.

Unless exempt, employees covered by the FLSA must receive at least federal minimum wage for all hours worked and overtime pay for hours worked over 40 in a workweek at a rate not less than one and one-half times their regular rates of pay. However, Section 13(a)(1) of the FLSA provides an exemption from both minimum wage and overtime pay for bona fide executive, professional and administrative, certain employees, certain computer employees, and outside sales employees. To qualify for exemption, employees generally must meet certain tests regarding their job duties and be paid on a salary basis at not less than $455 per week. In order for an exemption to apply, an employee's specific job duties and salary must meet all the requirements of the Department's regulations. To most folks, these exemptions are commonly known as "white collar exemptions".

Since the 1940's the DOL's regulations have generally required some variation of the following three tests for an FLSA white collar exemption to apply. Currently, to qualify for exemption, a white collar employee generally must:

1) be salaried, meaning that they are paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the "salary basis test");

2) be paid at least a specific salary threshold, which is $455 per week (the equivalent of $23,660 annually for a full-year employee) in existing regulations (the "salary level test"); and

3) primarily perform executive, administrative, or professional duties, as provided in the Department's regulations (the "duties test").

The salary level test was last updated in 2004. As a result, the threshold for salaried workers that would be eligible to receive overtime has failed to keep up with the increasing inflation rate. The new final rule primarily focuses on updating the salary and compensation levels needed for employees to be exempt. Per the new rule, the salary threshold will nearly double to $913 per week (or $47,476/year). The DOL believes that the 40th percentile of weekly earnings for full-time salaried workers represents the most appropriate line of demarcation between exempt and nonexempt employees. According to a recent report from the DOL, of the more than 4 million Americans expected to be impacted by the final rule, nearly 158,000 of those are Georgians.

The final rule is still the subject of much debate. Senate and House Republicans have developed their own bill called Protecting Workplace Advancement and Opportunity Act ("PWAOA"), which would require the DOL to conduct a comprehensive analysis of how a change in the white collar exemption could impact small business owners, public entities, and non-profit organizations. Absent some intervening federal legislative action, however, employers must take timely action to bring themselves into compliance with the requirements of the new rule.

As a Georgia employer, what steps can you take now to prepare yourself for these changes to the FLSA? Employers should take advantage of this intervening period by evaluating employees currently classified as exempt and assessing the impact, if any, if that employee is classified as non-exempt and therefore eligible to earn overtime wages due to the final rule. Now is also a good time to review job descriptions, or draft new job descriptions.