Administration Releases Long-Awaited Proposed Rule on Overtime Pay

The Department of Labor’s Wage and Hour Division (WHD) announced its proposal to amend the Fair Labor Standards Act (FLSA), including the regulations governing the “white collar” exemption for executive, administrative, and professional employees. While the proposed rule will mean higher salaries for exempt employees, nothing goes into effect immediately, and there will be a comment period, as well as expected legal challenges before anything becomes final.

There is no exemption for non-profit organizations under the FLSA, or in the proposed rule. The proposed rule may impact non-profit organizations, including colleges and universities, showing annual unrelated business earnings of at least $500,000. According to the Department, in determining coverage, only activities performed for business purposes are considered - and not charitable, religious, educational, or similar activities of organizations operated on a non-profit basis where such activities are not in substantial competition with other businesses. Colleges and universities will want to pay special attention to this language, and the community may seek clarification prior to implementation. Additional information, including FAQ’s and instructions for commenting can be found on the Department of Labor’s website.

By way of background, the FLSA generally requires that employers pay employees overtime, based on a formula in excess of 40 hours per week. The FLSA exempts certain employees from the overtime pay requirements, most commonly those in the executive, administrative, or professional fields (white collar exemptions) if they earn above a certain baseline salary. The main change proposed in the new rule is an increase in the minimum salary that would trigger eligibility for the white collar exemption. Had there been an automatic inflation adjuster in previous regulations, the amount would have already been set at just under $48,000 per year in 2013. The Department of Labor is projecting that the 2016 level will increase to $50,440 per year. The proposal also provides for an automatic inflation adjustment based on Bureau of Labor Statistics data, so future rulemaking would be unnecessary. At the other end of the spectrum, the amount of earnings needed to reach the qualification for highly compensated employees would be raised to $122,148 and also provides an automatic adjustment for inflation.

President Obama has remarked that his proposal would help assure that “hard work is rewarded” and that “too many Americans are working long days for less pay than they deserve.” Sources indicate that the proposal will increase overtime pay to some five million workers that are currently excluded under the law. To be sure, the proposed salary level increase to $50,440 is substantial - and employers will need to consider the impact on their organization or institution. Employers are advised to participate in the comment period and begin longer-term planning.

Once the Notice is published in the Federal Register – which is expected shortly – there will be a 60 day public comment period.

For more information, please contact:
Karin Johns