STATE PERSONNEL SYSTEM (SPS)
PROPOSED CHANGES TO THE FEDERAL FLSA WHITE-COLLAR
OVERTIME EXEMPTION REGULATIONS
BACKGROUND
Workers paid hourly wages, or who earn below a certain salary, are generally protected by
overtime regulations, while those above the threshold who perform executive, professional or
administrative duties are not. The Department of Labor (DOL) set the threshold at $250 per
week in 1975. In 2004, the threshold was raised to $455 per week ($23,660 annually). This is
below today’s poverty line for a worker supporting a family of four. White collar workers
earning below the threshold are entitled to overtime pay.
Early in 2014, President Obama, as part of his plan to raise wages, ordered the Department of
Labor to revise the rules that determine which workers are eligible for overtime pay. The DOL
was instructed to consider the following when determining how the regulations could be
revised:
• Update existing protections in keeping with the intention of the Fair Labor Standards Act
• Address the changing nature of the American workplace
• Simplify the overtime rules to make them easier for both workers and employers to
understand and apply
Nationally, the White House estimates that a new threshold in 2016 of $50,440 annually would
make about 5 million currently exempt salaried workers eligible for overtime.
PROPOSED CHANGES
The DOL has issued the Notice of Proposed Rulemaking which focuses primarily on updating the
salary and compensation levels needed for white collar workers to be exempt. On July 6, 2015
the proposed rule was published in the Federal Register. Specifically, the DOL proposes to:
1. If the DOL’s proposal to set the standard salary level at the 40th percentile of weekly
earnings for full-time salaried workers is implemented, the DOL projects that this would
raise the salary threshold from $455 a week (the equivalent of $23,660 a year) to about
$970 a week ($50,440 a year) in 2016. Approximately 20,124 additional SPS employees
would become eligible for overtime.
2. Increase the total annual compensation requirement needed to exempt highly
compensated employees (HCEs) to the annualized value of the 90th percentile of weekly
earnings of full-time salaried workers ($122,148 annually – presently this threshold is
$100,000); and
3. Establish a mechanism for automatically updating the salary and compensation levels going
forward as a test for exemption. Currently, there is no automatic update provision.
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While not part of the specific provisions or proposed regulatory changes, the DOL also:
•
•
Note:
Discusses the current duties test and solicits suggestions for additional occupation
examples and requests comments on the current requirements.
Seeks comment on whether to include nondiscretionary bonuses in the standard salary
requirement.
Exempt duties include those that are executive, administrative, and professional. Other
exemptions include computer employees earning not less than $27.63 per hour, outside
sales employees and highly compensated employees currently earning at least $100,000
annually.
For all positions eligible for exemption, the employee’s duties must meet one of the
above criteria and the base salary must not be less than $455 per week.
As an example, the administrative duties test includes:
1. Office or non-manual work directly related to management or business operations
of the employer or the employers customers, and
2. The exercise of discretion and independent judgment with respect to matters of
significance
NEXT STEPS AT THE FEDERAL LEVEL
Proposed rule changes are subject to the federal Administrative Procedure Act’s rulemaking
requirements. The DOL will have to complete a number of steps before any changes become
final:
• Proposed changes are subject to a public comment period which will end on September
4, 2015 to allow stakeholders to share their views
• Following the comment period, the DOL will hear testimony, review and respond to the
comments
• Secure approval of the final regulations by the Office of Management and Budget
(OMB). OMB review averages about 60 days, but may take as long as 120 days.
Even if the rulemaking process moves expeditiously, it is not likely that employers would be
required to implement any regulation changes before the end of the year. Also, legal
challenges could delay implementation.
Comment: When the DOL updated the regulations in 2004, it took more than 18 months to
implement the changes. (Buckconsultants - FYI® For Your Information®)
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ACTION PLAN
DMS/HRM will advise agencies of the proposed changes, but caution that the final regulations
may vary significantly from what appears in the proposed notice of rulemaking.
•
An HR Advisory will be sent out to inform agencies of recent developments.
•
Agencies will be instructed to:
1. Begin reviewing the position descriptions of their excluded employees to ensure job
duties are accurately stated. (This work should have already begun as part of the
implementation and annual review of SMART expectations for state employees.)
2. Identify and review those excluded positions which may not meet the FLSA
exemption tests for the white-collar exemption because of the new the salary
component of the regulatory changes.
•
A workshop will be planned to assist agencies in their analysis and development of plans
for implementation of the new regulations. Options may include:
1. Application of pay increases to certain positions to maintain their excluded status.
2. Reclassification of positions from excluded to included and the development of
plans for managing hours worked.
a. Will those employees continue to work any excess hours (over 40 in a week)
and receive the overtime pay or will they be limited to 40 hours?
b. Will additional budget dollars be needed to fund any increased overtime
hours?
c. Will agencies need additional staff to complement any limitation of work
hours for newly included employees?
Prepared by DMS – Division of Human Resource Management
March 2, 2015; Revised July 10, 2015
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