On July 6, 2015, the US Department of Labor (DOL) published a long-awaited Notice of Proposed Rulemaking (NPRM) in the Federal Register, making the agency's proposed changes to the Fair Labor Standards Act (FLSA) overtime regulations available for review and comment by the public (see Legal Updates, White House Directs DOL to Update FLSA Overtime Provisions and DOL Issues Proposed Rulemaking to Expand FLSA Overtime Protections).

Practical Law reached out to Alfred B. Robinson, Jr. of Ogletree, Deakins, Nash, Smoak & Stewart, P.C. for his thoughts on the proposed changes. Al has practiced labor and employment law since 1981. Before joining Ogletree Deakins, he served as the Acting Administrator of the DOL's Wage and Hour Division (WHD). The WHD administers and enforces a variety of labor standards statutes, including the minimum wage, overtime pay, child labor and recordkeeping requirements of the FLSA, the Family and Medical Leave Act (FMLA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA). Before joining the DOL, Al was a member of the South Carolina House of Representatives from 1992 until 2002 and served on the board of directors for the South Carolina Jobs-Economic Development Authority.

In March of last year, President Obama issued a Presidential Memorandum directing the Secretary of Labor to propose revisions to the FLSA regulations that would modernize and streamline those rules. The DOL's July 6, 2015 NPRM is the agency's response to that directive.

However, the DOL has been clear about the need to update the FLSA regulations to better reflect the modern workplace since 2004, when the agency revised the regulations governing white collar exemptions under the FLSA. In fact, some of the same language used in the preamble to the 2004 revisions also appears in the NPRM. In both, the DOL refers to efforts to modernize and clarify the rules, restore overtime protections to lower-wage employees by raising the minimum salary requirement for exemption and reduce wage and hour litigation.

So, although the most recent directive came from the Obama administration, it is consistent with the DOL's long-standing goals.

The DOL proposes a dramatic increase in the minimum salary threshold for white collar exemptions. The proposed regulations would increase that threshold from the current minimum of $455 per week to a projected $970 per week in 2016. This increase elevates the importance of the salary basis test for white collar exemptions under the FLSA.

The current salary threshold has not been updated since 2004 and is often a nonissue in exempt classification decisions. However, under the proposed regulations, some previously exempt employees may no longer qualify for exemption based on their salary alone, regardless of the exempt nature of their duties. Exempt employees with salaries between $455 and $970 per week will lose their exempt status if the DOL's proposed minimum salary is made final.

Although the DOL does not propose specific regulatory changes on this issue, the agency has requested public comment on the possibility of applying a portion of non-discretionary bonuses toward satisfying the minimum salary threshold. This approach may be beneficial for employers if some logistical issues are addressed favorably.

For example, the DOL suggested that only 10% of the salary level requirement could be met by those bonus payments and bonuses must be paid at least monthly if not more frequently. As a result, employers that pay bonuses on a quarterly or even an annual basis would be unable to take advantage of this option unless the DOL revises its suggestions and permits a longer look-back period.

The DOL has not proposed regulatory changes to the existing duties tests under the FLSA's white collar exemptions. It has instead requested that the public suggest additional examples of occupations that typically are (or are not) exempt, and comment on questions about the current duties test requirements and options to revise them.

While it is not clear what the DOL intends to do with the duties tests based on the comments it receives, the final rule could include some changes to those tests. The DOL could:

The DOL released its proposed regulations on June 30, 2015 and published the NPRM on July 6, 2015. The 60-day notice and comment period ends September 4, 2015, but it is expected that the DOL will extend that period, possibly for another 30 days.

After the comment period ends, the DOL must review the comments and draft the final rule and preamble. Given the volume of comments this NPRM is expected to generate, it is likely we will not see the final rule for 9 to 12 months after the end of the comment period. It is difficult to predict the effective date of the final rule, though the changes must become effective no later than the last days of the Obama administration. Depending on the content and date of the final rules, an effective date could be about 90 days after its publication.

Definitely. Perhaps the most critical thing employers should do now is to assess how they must classify employees whose salary falls between $23,660 (the annual equivalent of $455 per week, the current salary threshold for exemption) and about $50,000 (approximately the new salary threshold if the proposed regulations are finalized as written). Exempt employees earning less than the minimum salary established by the revised regulations will no longer qualify for exemption when those regulations are finalized, regardless of the employees' duties or positions. Employers should consider possible adjustments for employees in that salary range, including reclassifying employees as nonexempt, increasing their salaries or evaluating other options under the FLSA.

Similarly, employers should be prepared to deal with regular increases in the minimum salary threshold. The DOL proposes that the salary threshold for exemption increase at regular intervals, such as annually based on an index of inflation or the salary level benchmark. If so, increases to the minimum salary threshold may outpace employee salary increases in some workplaces.

If that happens, an employee who is still exempt when the revised regulations become effective, may not be exempt a few years later when the minimum salary threshold exceeds the employee's salary level. Employers should consider a process for tracking any increases to the salary threshold and making appropriate adjustments to existing employee salaries or classification.

The opposite is also true. A salary increase following an employee's performance review or promotion for example, may be sufficient to make the employee eligible for exemption, assuming the duties test is also satisfied. Employers should consider what effect salary increases may have on an employee's classification. For example reclassification could mean some employees in the same job position or group are exempt and some are not.

Employers and their counsel should also consider participating in the public comment period. For example, employers can express concerns about the new salary threshold and how it should be updated in the future, as well as changes to the duties tests that would result in fewer employees qualifying as exempt.

Employers and their counsel should consider commenting on the proposed regulations because the DOL has asked for input in many areas that we have discussed. The DOL's proposed minimum salary threshold for white collar exemptions under the FLSA represents a dramatic increase over the current minimum of $455 per week. Public comments may influence how any salary threshold increase is implemented. For example:

The DOL has also invited comments on the existing regulations governing the duties tests for white collar exemptions, but it is unclear what the agency intends to do with those comments. At a minimum, employers should express any concern over the DOL implementing new duties test requirements based on comments to this NPRM, without giving the public the opportunity to comment on those requirements specifically.

The public comment period ends September 4, 2015, but it may be extended. Interested parties can review and submit comments at Regulations.gov.