The Department of Labor (DOL) has released proposed rules to update the white-collar exemptions from overtime. These exemptions apply to employees who work in executive, administrative, professional, outside sales, or computer positions.
White-collar workers will be eligible for overtime if they work more than 40 hours a week and earn less than $50,440 in 2016. Whether someone is exempt from overtime depends on whether the worker meets all three prongs of a three-prong test.
First is the salary basis test, which means you have to be paid a salary. Hourly workers generally don't qualify as white-collar employees.
Second is the salary level test, which says a salary has to be a certain amount. Currently, that salary is set at $455 a week or an annual salary of a little over $23,000 a year. These proposed regulations would raise that to $970 a week, or a $50,440 annual salary.
The third test is the duties test. There is a separate duties test for each exemption that might apply. For example, the duties test for the executive exemption is different than the duties test for the administrative exemption, which is different than the test for the learned professional.
The DOL says the "salary level test is 'the best single test' of exempt status." But it only works if the test is updated on a regular basis.
Historically, going back to 1940, the salary level was raised periodically so that it covered a significant portion of the white-collar workforce. In 1975, that level was 65% of all white-collar workers. When it was next updated, 30 years later in 2004, the rate was set low-at a level that would put that same family of four into poverty.
When the salary level test is set at a high enough level, it provides an effective method of distinguishing between white-collar workers who are eligible for overtime and those who are exempt, without resorting to the duties test. The DOL believes that, currently, too many workers are eligible for the exemption under the salary test but don't come close to meeting it under the duties test because of the disproportionate amount of nonexempt work they perform.
The example so often heard about is the sandwich shop manager who does all the same work of the other employees but also handles all the paperwork during uncompensated overtime, effectively reducing his or her hourly rate below the minimum wage.
When the weekly salary level is raised from $455 to $970, the DOL expects four and a half million workers to become eligible for overtime. At the same time, another six million employees would have their overtime protection strengthened. These employees are already being paid overtime, but the higher salary level would make their status clear without having to resort to the complicated duties test.
$970 dollars a week-how did the DOL get to that number?
As was done in the past, the DOL would like to set the number at a meaningful level. They chose the 40th percentile because it's lower than it was in 1975 but considerably higher than it is now.
The salary raise to over $50,000 is getting so much of the attention, but even more significant is the fact that the salary will be adjusted every year. With a static rate, there are workers who might be eligible for overtime one year but not the next, simply because they received a raise that took them over the limit, even though they are no better off financially due to the cost of living.
If you would like to share your thoughts on this proposed ruling, you have until September 4 to let the DOL know.
Read the proposed rules in the July 6 Federal Register [80 FR 38516].
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