The Department of Labor announced yesterday a proposed rule that would impose new overtime pay requirements on employers and affect 5 million white collar workers within the first year of the rule's implementation. The proposal would guarantee overtime pay to most salaried workers earning less than an estimated $50,440 next year.

The Department is proposing to update the regulations governing which executive, administrative, and professional employees (white collar workers) are entitled to the Fair Labor Standards Act’s minimum wage and overtime pay protections. The DOL proposal focuses primarily on updating the salary and compensation levels needed for white collar workers to be exempt.  Specifically, the Department proposes to set the standard salary level at the 40th percentile of weekly earnings for full-time salaried workers ($921 per week, or $47,892 annually).  As proposed, this would raise the salary threshold from $455 a week ($23,660 a year) to a projected level of $970 a week ($50,440 a year) in 2016. The DOL's proposal would also increase the total annual compensation requirement needed to exempt highly compensated employees to the annualized value of the 90th percentile of weekly earnings of full-time salaried workers ($122,148 annually).

Another significant change proposed by the DOL is the establishment of a mechanism for automatically updating the salary and compensation levels going forward. The Department is considering two alternative methodologies for annually updating the salary and compensation thresholds. One method would update the thresholds based on a fixed percentile of earnings for full-time salaried workers. The other method would update the thresholds based on changes in the Consumer Price Index for urban consumers. Both methods are described in detail in the DOL's Notice of Proposed Rulemaking (NPRM), and the Department is asking for comments on which methodology would be the most appropriate basis for annual updates to the salary and compensation thresholds.

While some anticipated that the Department's proposal would also propose changes to the current duties tests for the white collar exemptions, the DOL proposal did not include any revisions to the duties tests in its proposal.  Rather, the NPRM is soliciting comment on the current requirements.  The DOL also has asked for comment on whether the Department should look to the State of California’s law (requiring that 50 percent of an employee’s time be spent exclusively on work that is the employee’s primary duty) as a model.  Similarly, the Department is seeking comment on the possibility of including nondiscretionary bonuses to satisfy a portion of the standard salary requirement.  The Department has not proposed specific regulatory changes on either the duties tests or the inclusion of bonuses.

Although the Office of Management and Budget (OMB) has reviewed and approved the NPRM, the document has not yet been published in the Federal Register. The NPRM that appears in the Federal Register will specify the dates of the public comment period and may contain minor formatting differences in accordance with Office of the Federal Register publication requirements. The DOL announced the OMB-approved version as a convenience to the public and the DOL has indicated that its website will be updated with the Federal Register’s published version when it becomes available.  The full text of the NPRM, as well as information on the deadline for submitting comments and the procedures for submitting comments, can be found at the DOL's Proposed Rule website.