U.S. Department of Labor Proposes Changes to FLSA Overtime Exemption Rules

Filed under: Advisory

By Candi Avery, CPA, CGMA

Originally enacted in 1938, the Fair Labor Standards Act (FLSA) requires employees to be paid a minimum wage and overtime pay at a rate of not less than one and one-half times the employee’s regular rate for hours worked over 40 in a workweek, unless certain exemptions are met.

Under the FLSA, for an employee to qualify as exempt from the payment of overtime they must meet a “minimum salary threshold” test and perform certain specified executive, administrative or professional duties. In July 2015, The U.S. Department of Labor (DOL) issued proposed changes to the overtime exemption rules that are estimated to entitle an additional 4.6 million workers to overtime protection under the FLSA.

The proposed changes, if adopted, would significantly increase the “minimum salary threshold” an employee must surpass to qualify for exempt status. Since 2004, an employee had to receive at least $455 per week in order to satisfy the “minimum salary threshold” test, which equates to $23,660 per year. Under the proposed rule, the “minimum salary threshold” would be increased to match the 40th percentile of weekly earnings for full-time salaried workers, which is projected to be around $970 a week and equates to $50,440 per year. The DOL has also proposed that the salary level be automatically updated annually to prevent them from becoming outdated between rulemaking periods.

There is no current or proposed exemption for non-profit organizations under the FLSA; however, the FLSA rules generally only apply to enterprises that have gross revenues of $500,000 or more and other specific businesses.

The DOL has not yet proposed any changes to the required duties for the exemption; however, it has invited comments on potential changes to the duties test, such as requiring exempt employees to engage in exempt duties a minimum amount of time.

The proposed rules changes are currently in the comment period, which ends September 4th unless an extension to the comment period is granted. The finalized rules are expected to take effect in 2016.

For more information visit: www.dol.gov.

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