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New Overtime Rules Proposed: What you need to know

The Department of Labor (DOL) issued proposed changes to the overtime exemptions under the Fair Labor Standards Act (FLSA). The proposal would make substantial increases to the minimum salary requirement for white collar exemptions.

Adjusting to the DOL’s New Overtime Rules:

At last the Department of Labor released its proposed overtime rules, which extends overtime pay next year to workers earning a minimum salary of $921.00 per week or $47,892 annually. However, by the time the final rule is issued in 2016, the DOL estimates that the salary level will climb to $970.00 per week or $50,440.00 per year.

Other proposed changes involve continuously increasing the salary level each year and setting a higher standard for highly compensated employees, from the current $100,000 level to $122,148.

The Fair Labor Standards Act requires covered employers to pay “non-exempt” employees at least the minimum wage for each hour worked as well as overtime pay for all hours worked in excess of 40 in a workweek. While most employees are non-exempt, the FLSA includes exemptions for certain administrative, professional, executive, and highly compensated, outside sales and computer professional employees. These employees are known as “exempt” employees.

To be considered exempt, these employees must generally satisfy three tests:

  1. Salary-level test (currently $455.00 per week for the executive, administrative, professional employee exemptions. The computer employee exemption has its own salary level test. The outside sales employee exemption has no salary level test).
  2. Salary-basis test (receive their full salary in any week they perform work, regardless of the quality or quantity of the work).
  3. Duties test (the employee’s primary duty must meet certain criteria).

There is also an examination for “highly compensated” employees who are paid a total annual compensation of at least $100,000. These employees are exempt from the FLSA’s overtime requirements if they customarily and regularly perform at least one of the exempt duties or responsibilities of an executive, administrative or professional employee.

The proposed overtime change is expected to impact nearly 5 million workers-56% of who are women and 53% of who have at least a college degree-and better reflect the intent of the Fail Labor Standards Act. The industries most affected by the new salary include retail and fast food restaurants, since their first-line supervisors tend to earn a lower average wage when compared to employees in other industries such as engineering or technology manufacturing.

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