The federal Department of Labor has proposed major changes to the overtime regulations for the first time in 10 years. Among the changes the proposed regulations would bring would be a significant increase in the salary level for exemption from overtime. In this video, BLR Legal Editor Susan Prince, JD, provides employers with what they need to know about the proposed regulations.

Use BLR's new Proposed Overtime Rules Calculator to determine how the proposed changes will affect your organization's payroll budget.

Hi, my name is Susan Prince. I’m a Legal Editor at Business and Legal Resources. Today I’m here to speak with you about the Department of Labor’s proposed overtime regulations. The federal Department of Labor has proposed major changes to the overtime regulations for the first time in 10 years.

First let’s talk about the salary level increase.

The DOL proposes to set the standard salary level at the 40th percentile of weekly earnings for full-time salaried workers. This would raise the salary threshold to about $970 a week in 2016. This equals $50,440 annually.

The DOL proposes to automatically update the standard salary and compensation levels annually, either by maintaining the levels at a fixed percentile of earnings or by updating the amounts based on changes in the Consumer Price Index.

Now let’s talk about how this affects white collar employees.

In order to be exempt from overtime, executive, administrative and professional employees would have to be compensated on a salary basis of at least $921 per week, exclusive of board, lodging or other facilities.

The overtime exemption as proposed would apply to any computer employee who is compensated on a salary or fee basis at a rate of $921 per week or more, or on an hourly basis at a rate of at least $27.63 an hour.

Now let’s address highly compensated employees.

The DOL also proposes to set the total annual compensation level for highly compensated employees at $122,148 per year, an increase from the current threshold of $100,000. An employee earning $122,148 annually would be exempt if the employee customarily and regularly performs any one or more of the exempt duties or responsibilities of an executive, administrative or professional employee and performs office or nonmanual work.

Now the duties tests.

The DOL has not yet proposed altering the duties tests for exemption, although this may change during the public comment period and with the release of the final regulations.

What about fee basis payments?

Administrative and professional employees may be paid on a fee basis rather than on a salary basis. According to the proposed regulations, to determine whether the fee payment meets the minimum amount of salary required for exemption, the amount paid to the employee will be tested by determining the time worked on the job and whether the fee payment is at a rate that would amount to at least the minimum required salary per week if the employee worked 40 hours.

Let’s talk about educational establishments.

Employees whose primary duty is performing administrative functions directly related to academic instruction or training in an educational establishment or department will be exempt if they are compensated on a salary or fee basis of at least $921 per week; or on a salary basis which is at least equal to the entrance salary for teachers in the educational establishment in which they are employed.

Will additional compensation cause an employer to lose the exemption?

No. An employer may provide an exempt employee with additional compensation without losing the exemption or violating the salary basis requirement, if the employment arrangement also includes a guarantee of at least the minimum weekly-required amount paid on a salary basis. Additional compensation may come in many forms, for example: a one percent commission on sales, a percentage of sales or profits, or additional compensation based on hours worked for work beyond the normal workweek.

Most employers will be affected by the changes to the FLSA regulations. In addition, most business establishments will incur costs from the changes. What types of costs are we talking about? Some costs will be one-time implementation costs and other costs will be ongoing for an indefinite period of time. Some examples are:

• Devoting time to reading and understanding the proposed and final regulations
• Updating corporate overtime policies to comply with the FLSA changes
• Establishing communication between employers and employees about the benefits of qualifying as an exempt or nonexempt employee
• Reviewing job categories and job descriptions to classify them as either exempt or nonexempt
• Paying overtime to those employees who exceeded the current salary threshold of $455 per week, but will fall below the new salary level
• Increasing the salaries of certain employee groups to raise them above the salary threshold to classify them as exempt
• Facing lawsuits by employees who claim they qualify for overtime under the FLSA

Thank you for joining me today and best of luck with the new overtime regulations!