New Proposed Changes to the Fair Labor Standards Act (FLSA): What you Need to Know
We will break down the key aspects of the DOL's proposed rule changes and how they might affect your business
As a Florida business owner, it's essential to stay informed about potential changes in labor laws that can impact your business operations. Munizzi Law Firm routinely advises business owners who think that they have a good grasp of labor laws, but find out that there is more to the story than they expected.
Currently, the United States Department of Labor (DOL) is currently proposing yet another set of revisions to the overtime rules—this time with particular respect to the exemptions for Executive, Administrative, Professional (EAP), Outside Sales, and Computer Employees.
In this article, we will break down the key aspects of the DOL's proposed rule changes and how they might affect your business.
Purpose of the Proposed Rule
The DOL's proposed rule aims to update and revise the regulations that determine whether certain white-collar salaried employees are exempt from minimum wage and overtime requirements under the Fair Labor Standards Act (FLSA). This exemption, known as the "white-collar" or "EAP" exemption, applies to employees in bona fide executive, administrative, or professional capacities.
“Overtime”, as defined by the FLSA, requires employers to pay employees covered by the act at a rate not less than one and one-half times their regular rate of pay for hours worked in excess of 40 in a workweek, unless specifically exempted.
Qualifying for the EAP Exemption
To qualify for the EAP exemption under current rules, an employee must generally meet the following criteria:
Be paid a salary, meaning a predetermined and fixed amount not subject to reduction based on work quality or quantity (the "salary basis test").
Earn at least a specified weekly salary level, which is currently $684 per week ($35,568 annually for a full-year employee) (the "salary level test").
Primarily perform executive, administrative, or professional duties as defined in the DOL's regulations (the "duties test").
Certain employees, such as doctors, teachers, and lawyers, are exempt from both the salary basis and salary level tests.
Recent Revisions and Proposed Changes
The last revision to the EAP exemption regulations occurred in 2019, with a standard salary level of $684 per week in effect since January 1, 2020. The DOL is now proposing changes for several stated reasons:
- Wage Growth: Over the past four years, the DOL argues that salaried workers have seen significant growth in their nominal wages, making the current salary threshold less effective.
- Updating the Salary Level: The DOL states that they wish to update the salary level to more accurately identify bona fide EAP employees and ensure the intended overtime protections of the FLSA are fully implemented. Their reasoning for this is to keep the law current with the reality of the wage situation in the U.S.
In the proposed rule, the DOL intends to do the following:
- Increase the standard salary level to the 35th percentile of earnings of full-time salaried workers in the lowest-wage Census Region (currently the South), which would become $1,059 per week ($55,068 annually).
- Apply the standard salary level to U.S. territories and increasing special salary levels for American Samoa and the motion picture industry.
- Raise the salary level for highly compensated employees (HCE) to $143,988 per year, with at least $1,059 per week paid on a salary or fee basis.
- Automatically updating earnings thresholds every three years based on current wage data.
Duties Test Remains Unchanged
Importantly, the DOL is not proposing changes to the standard duties test, emphasizing the importance of an appropriate salary level requirement to distinguish bona fide EAP employees from nonexempt workers. This is good news for employers who have relied upon the standard duties test in categorizing their exempt and non-exempt employees. The scope of the employer’s inquiry then, if the propose rule goes into effect, will simply be to audit the current salary levels for all exempt employees to determine whether they will remain exempt or not.
Review and Comment
Interested parties can review and comment on the DOL's proposed changes through the Notice for Proposed Rulemaking (NPRM) available on www.regulations.gov. The comment period typically lasts for 60 days from the publication date in the Federal Register.
As a Florida business owner, it's crucial to stay informed about the proposed changes to overtime rules by the Department of Labor. These changes can impact your workforce and labor costs. To ensure compliance and mitigate potential risks, consider consulting with one of our attorneys and actively participating in the rulemaking process to voice your concerns or suggestions. Staying proactive and informed will help your business adapt to forthcoming changes in labor regulations.
NOTE: At the time of writing, the DOL’s Proposed Rule has not gone into effect. This article provides guidance in the event that the Proposed Rule does go into effect. The reader is strongly advised to consult with legal counsel regarding the current status and effect of the Proposed Rule. This article is not intended to be a substitute for legal advice.