Agency Plans to Raise Threshold for Overtime

     WASHINGTON (CN) – The Department of Labor plans to raise the base salary an employee can make and still be entitled to overtime pay.
     The Wage and Hour Division of the Labor Department has issued a proposed regulation to make this revision.
     Under the Fair Labor Standards Act, most workers earn one and one-half times the employee’s regular rate for hours worked over 40 in a workweek. There are a number of exemptions that allow an employer to avoid this rate, according to the notice.
     By way of this rulemaking, the department seeks to update the salary level to ensure that the the act’s intended overtime protections are fully implemented, and to simplify the identification of nonexempt employees.
     The department plans to set the standard salary level threshold at the 40th percentile of earnings for full-time salaried workers. This was $921 per week, or $47,892 annually for a full-year worker, in 2013.
     It also plans to set the “highly compensated employee” annual compensation level equal to the 90th percentile of earnings for full-time salaried workers ($122,148 annually). When an employee reaches a certain level of compensation, he only needs to pass a minimal duties test to be considered exempt.
     Additionally, the department plans to include a mechanism to automatically update the salary and compensation thresholds annually using either a fixed percentile of wages or the Consumer Price Index for all urban consumers (CPI-U).
     Lastly, the department is considering whether revisions to the duties tests are necessary to ensure that these tests fully reflect the purpose of the exemption.
     Under the current regulations, an executive, administrative, or professional employee must be paid at least $455 per week ($23,660 per year for a full-year worker) to come within the standard exemption; to come within the exemption for highly compensated employees (HCE), the employee must earn at least $100,000 in total annual compensation.
     Since 1940, the regulations implementing the white collar exemption have generally required each of three tests to be met for the exemption to apply: (1) The employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the “salary basis test”); (2) the amount of salary paid must meet a minimum specified amount (the “salary level test”); and (3) the employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations (the “duties test”).
     Comments are due by Sept. 4.

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