On June 30, 2015, the United States Department of Labor (DOL) issued a Notice of Proposed Rulemaking seeking comments on a proposal to raise the salary threshold for the so-called “white-collar” exemptions from $455 per week ($23,660 annually) to an expected $970 per week ($50,440 annually), as projected by the DOL for 2016. The DOL also proposes that the salary basis track the 40th percentile of the earnings of full-time salaried workers, meaning that if adopted this salary threshold would adjust automatically in the future without further DOL action. The DOL further seeks comments on the current duties tests for determining whether employees are performing work that is exempt from overtime under the executive, administrative, professional, outside sales, and computer exemptions.

Under the federal Fair Labor Standards Act, employers must pay employees overtime pay of one and one-half times their regular rate for any hours worked over 40 in a workweek, unless the employer can establish that the employee is exempt. The salary threshold for “white-collar” exemptions was last updated in 2004. Many states, including Connecticut, Massachusetts, and New York, have separate salary basis and duties tests for determining whether employees are exempt.

The DOL’s proposal did not include proposed changes to the duties tests for comment; rather, it seeks comment on whether any changes should be made to the duties tests for the “white-collar” exemptions. In particular, the DOL noted difficulties in litigating the “primary duty” test, which requires employers to show that an exempt employee’s primary duty involves the performance of exempt tasks. The DOL also noted that some commentators believe it should consider a rule that requires workers to spend at least 50 percent of their time on exempt tasks to qualify for the exemption, as done in California.

If adopted, the DOL’s proposed rule may have a substantial impact on manufacturers. Many working foremen and other professional, administrative and executive staff currently classified as exempt could automatically lose the exemption from overtime as a result of the raising of the salary threshold. Even those who meet that salary threshold in one year could lose it the next simply because their salary did not keep up with the rate of inflation. (To this writer, pegging an increase in the threshold salary to the 40th percentile of all salaried workers would seem to put inflationary pressure on the entire spectrum of salaried positions.) Finally, to the extent the DOL changes the “primary duties” test to require more than 50 percent of the employee’s time be spent on exempt duties, many working supervisors and managers would become eligible for overtime without regard to their salary.

These changes may require manufacturers to modify their payroll and other practices. Employees previously (and properly) exempt from overtime may not have recorded working hours or tasks. Simply speaking there was no need to conduct any job task analysis to prove exempt status. That may no longer be true. Going forward, the failure to track job tasks and time spent may endanger the exempt status of not only the particular employee in question, but the entire class of employees working in the same job classification.

The Notice of Proposed Rulemaking was published in the Federal Register on July 6, 2015, and is subject to a 60-day comment period. Interested parties may submit comments at www.regulations.gov before September 4, 2015. If the proposed rule becomes final, the salary threshold increase is not expected to take effect until sometime in 2016. To view the announcement by the U.S. Department of Labor, click here. To view the Notice of Proposed Rulemaking, click here.