Proposed Overtime Regulations Would Significantly Limit Overtime Exemptions

John Christopher, Manley Burke, john.christopher@manleyburke.com

In response to President Obama’s March 13, 2014 Memorandum instructing the U.S. Department of Labor (DOL) to update the Fair Labor Standards Act (FLSA) regulations governing who qualifies for overtime, the U.S. Department of Labor publicly revealed long-anticipated proposed amendments to the overtime exemption regulations on June 30, 2015. The proposed rule would substantially increase the number of Fraternity and Sorority employees that qualify for overtime pay.

With some exceptions, the FLSA generally requires employers pay employees overtime for any week in which the employee works more than 40 hours. The exceptions to the FLSA provide important alternative compensation structures to Fraternities and Sororities. For example, many house directors and leadership consultants qualify for an exemption to the overtime pay requirements.

As has been discussed in prior articles, whether an employee must be paid overtime depends upon whether the employee meets two tests – a compensation test and a duties test. An employee will be exempt from the overtime rules if: (i) the employee’s compensation meets or exceeds a weekly threshold amount; and (ii) the employee has a primary duty of the performance of office or non-manual work directly related to the management or general business operations of the employer, which includes the exercise of discretion and independent judgment with respect to matters of significance.

Compensation Test

Under the current regulations issued in 2004, the salary threshold is fixed at $455 per week (equating to $23,660 per year). That is, the existing rules require an employee receive a salary of at least $455 per week to meet the compensation test.

The proposed regulations seek a significant change to the salary threshold. Instead of a fixed weekly salary threshold, the proposed regulations provide that an “updated salary rate” would be published annually and will be based on Bureau of Labor Statistics data. The remarks accompanying the proposed regulations indicate that the updated salary rate may result in a $970 threshold (annualizing to $50,440) as early as next year.

Of particular interest to house corporations is whether the cost of housing a house director on the premises can be included in the house director’s compensation for purposes of meeting the compensation test. The FLSA rules state that an employer may not account for the value of lodging if the employee is required to live on the employer’s premises for the benefit of the employer. That is, a live-in house director that is required, as a condition of employment, to live at the chapter facility and be available to the residents resides there for the employer’s benefit. As such, the house director is entitled to that lodging without the value being factored into wages.

Duties Tests

The proposed regulations do not change the rules related to the kinds or amounts of work performed by an exempt employee.  Thus, at least for now, exempt employees must continue to primarily engage in office/management type activities and must exercise discretion and independent judgment with respect to matters of significance. This is despite the speculation of some commentators that the proposed regulations would impose a requirement that an exempt employee prove that at least 50% of his or her duties qualified under the exemption standards.

However, the DOL in its narrative accompanying the proposed regulations asks for comments as to whether changes to the duties test be included in the final rule.

Status

As of the writing of this article, the proposed regulations have not been published in the Federal Register. Once published, the public may submit comments for a period of 60 days. The DOL will then take the comments under consideration. From there, it is unclear what will happen next. The proposed regulations could become final, the period for comments could be extended or new or revised proposed regulations could be published among other potential options.

For now, the proposed regulations are not effective. We will continue to monitor the rule making process and prepare updates as things progress.