The final amendments to the Fair Labor Standards Act’s (FLSA) white-collar exemptions soon will be upon us. Employers should begin preparing now for substantial changes to the federal minimum-wage and overtime exemptions that currently apply to bona fide executives, managers, supervisors, administrative employees, and professionals. At the opening session of the American Bar Association’s mid-winter meeting for the Federal Labor Standards Legislation Committee (FLSL Committee), Solicitor of Labor M. Patricia Smith confirmed again that the Department of Labor (DOL) anticipates publishing the final amendments to the white-collar regulations by late spring or summer of 2016. The DOL also is committed to making the amendments effective before the end of the year.

On June 30, 2015, the DOL released proposed amendments to the DOL’s regulations concerning the so-called white collar exemptions. Among other things, the proposed regulations projected a substantial increase to the salary required to maintain exempt status for most managers, administrative personnel, and professionals. While not proposing any specific changes to the “duties” requirements for the respective white-collar exemptions, the DOL also solicited comments concerning possible changes to the “duties” tests, including the following:

• Whether exempt employees should be required to spend a minimum amount of time on exempt work;

• Whether the DOL should adopt the “California” requirement that more than 50% percent of an exempt employee’s time be spent performing exempt duties;

• Whether the DOL should reconsider reinstating a long and short duties test (which existed prior to the 2004 regulatory amendments); and

• Whether the DOL should eliminate the “concurrent duties” rules (which currently allow a manager to perform exempt and nonexempt duties at the same time). 

Pursuant to the federal Administrative Procedure Act (APA), the DOL submitted these proposed amendments for public comment for a period of 60 days. The DOL received approximately 270,000 comments concerning the proposed regulatory changes. The DOL declined to extend the comment period, which officially ended on September 4, 2015. Since that time, not much has been known about the status of the proposed changes or when final rules would be released.

On February 17, 2016, however, the Solicitor of Labor spoke at the FLSL Committee meeting regarding the status of the white-collar regulations. Although the Solicitor would not give specifics concerning the content of the final rules, she reiterated that the proposed amendments recommended an increase to the salary basis test, to “approximately $50,000” per year, which is more than double the current amount. The proposed amendments also included a mechanism providing for subsequent  annual increases to the salary requirement, although the process by which such increases would occur has not been decided. Additionally, the Solicitor stated that the DOL researched the APA requirements and believes the DOL has authority to make changes to the duties tests, even though no specific changes were proposed.

Importantly, the Solicitor said that the DOL expects to release final rules by July 2016. She further noted that the Secretary of Labor would prefer to release the final rules even earlier by “late spring.” In either event, after the final rules are released, there will be a short period of time before those final rules become effective. The Solicitor stated, however, that the DOL plans to set an effective date before the end of 2016.

Such a short response time for complying with the final rules is problematic. The contents of the final rules will not be known until later this year. Once announced, employers will need to quickly respond to the final rules – potentially creating budgetary and operational concerns. Possible employer responses could include:

• Significant increases in salaries to maintain exempt status;

• Reclassifying employees to nonexempt status;

• Modifying job duties and position descriptions to comply with any changes to the “duties” tests;

• Changing work-hour and scheduling requirements to eliminate overtime;

• Adjusting to timekeeping requirements for historically exempt employees;

• Restructuring bonus and incentive pay; and

• Managing employee responses concerning such changes.

While the contents of the final rules are not known, the looming changes make early planning critical. Employers should consider working with their employment counsel and accounting staff now to analyze possible changes to compensation structures. Similarly, employers may wish to consider adding additional employees to eliminate overtime costs generally. Each situation will be different. Nonetheless, all employers should be aware that substantial changes to federal wage and hour laws are coming this year and begin preparing now. Aggressive enforcement is anticipated by the DOL after the effective date for the final rules, and unwary employers could find themselves embroiled in costly litigation or agency investigations.