The U.S. Department of Labor on June 30 proposed new rules that would entitle some 5 million additional workers to overtime pay under the Fair Labor Standards Act. The most significant regulatory change would be to double the salary level threshold   

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New Overtime Rules: Salary Threshold to Double

Tue Jun 30, 2015

Right now, too many Americans are working long days for less pay than they deserve.

–President Obama

The U.S. Department of Labor on June 30 proposed new rules that would entitle some 5 million additional workers to overtime pay under the Fair Labor Standards Act.

The most significant regulatory change would be to double the salary level threshold, below which salaried employees are eligible for overtime pay, from the present $23,660 per year to $50,440 in 2016.

The proposed rules, which do not require Congressional approval, represent only the second time in 40 years that the salary level has been updated The Department emphasized that since 1975 an ever smaller proportion of full-time workers had remained eligible for overtime pay.

Workers who earn above the salary cut-off may qualify as exempt from overtime pay if they also meet certain tests related to their job duties—an exemption the Department refers to as the “EAP” (for executive, administrative or professional) or “white collar” exemption.

Equally important, the proposed rules would establish an escalator mechanism under which the salary threshold would automatically increase every year. One option would be to set the annual salary threshold at the 40th percentile of earnings of all full-time salaried employees—which in 2013, according to the Department, was $921 per week or $47,892 per year. In 2016 the 40th percentile of earnings would produce an exemption threshold of $970 per week or $50,440.

Finally, the Department of Labor does not propose to rewrite the EAP duties tests. It had been expected that the new overtime rules would not only raise the salary threshold but recast the so-called “duties tests” to make it more difficult for above-threshold workers to qualify for an overtime exemption.

On the contrary, the Department seems to have decided that a more substantial bump up in the salary threshold, indeed a doubling in one step, plus the introduction of an automatic escalator mechanism, essentially substitutes for more restrictive and elaborate duties tests.

Indeed, as the Department explained, “Setting the standard salary level at the 40th percentile of weekly earnings…combined with annual updating, is the simplest method for securing the effectiveness of the salary level as the bright-line for ensuring that employees entitled to FLSA overtime protections are not exempted.”

The proposed rules are sure to be controversial and likely will encounter stiff opposition on Capitol Hill and from many employers. Nevertheless, there seems little doubt that final rules will be published later this year and could take effect in 2016.

The next installment of this blog will look at some implications of the new overtime rules.