Federal Department of Labor Issues Proposed Rule to Expand  Fair Labor Standards Act Overtime Requirements

On June 30, 2015, the United States Department of Labor (“DOL”) posted its proposed rules to update the Fair Labor Standards Act’s (“FLSA”) overtime pay regulations and related materials to its website. While these proposed rules have received much media attention they are only proposed at this point and not currently in effect.

The DOL issued the proposed rules in response to President Obama’s March 13, 2014, memorandum which directed the DOL to modernize and streamline the overtime rules and to simplify them for employers and workers because the regulations have not kept up with “our modern economy” as evidenced by the fact that “millions of Americans lack the protections of overtime and even the right to the minimum wage.”

The primary purpose of this proposed rule is to extend overtime pay to millions of workers. In fact, the DOL estimates that 4.6 million workers who are currently exempt from overtime pay under the current regulations will become eligible for overtime pay under the proposed regulations provided their employers take no action to alter that outcome.

The FLSA Basics

The FLSA is a federal law that, among other things, requires private sector and federal, state, and local governmental employers to pay employees a minimum wage and overtime for all hours worked in excess of 40 in a single workweek. The FLSA contains several exemptions to the overtime pay requirements for certain administrative, executive, and professional positions (commonly referred to as the “white collar” exemptions) and highly compensated employees (currently those earning more than $100,000 annually).

Currently, to qualify for a white collar exemption, a white collar employee must: (1) be paid on a salaried basis (the salary basis test); (2) be paid more than a specified salary threshold, which is currently set at $455 per week ($23,660 annually) (the salary level test); (3) perform administrative, executive, or professional duties (the duties test).

What are the Significant Changes Proposed?

There are three significant proposed changes. The first key change increases the salary level for full-time workers paid on a salary basis from $455 per week ($23,660 annually) to $921 per week ($47,892 annually). We note that the salary basis and level tests are not applicable to teachers under the current regulations and the proposed rule does not seek to modify this exception. The salary basis test does apply, however, to educational support employees (“ESPs”).

The second key change proposed is to establish a mechanism that will update the salary levels automatically to ensure they will continue to provide a useful and effective test for exemption. The third key proposed change is to increase the salary level for highly compensated employees to be deemed exempt from the minimum wage and overtime requirements from $100,000 to $122,148 annually.

At this time, the DOL is not proposing any changes to the duties test applicable to the white collar exemptions, but the DOL is seeking comments on whether the current duties tests are working as intended to ensure that no employees have been improperly classified as exempt from the minimum wage and overtime pay.

While these rules are only proposed and are not in effect, this is an opportune time to review the FLSA classifications of your non-teaching staff to determine whether they are correctly classified as FLSA exempt and to determine whether any changes are needed to continue exempt FLSA status of such employees if and when the proposed rules become final.

FLSA complaints and audits can expose school districts to enormous financial liability. Contact John DiJohn with your inquiries.

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