The Fair Labor Standards Act (the "FLSA") imposes minimum wage and overtime pay requirements on employers. The FLSA, however, exempts certain executive, administrative, and professional employees from its requirements. These three main exemptions from the FLSA are part of the so-called "white collar" or salaried employee exemptions. The requirements for each exemption are defined in administrative rules issued and enforced by the U.S. Department of Labor (the "DOL"). Earlier this year, the DOL announced proposed revisions to the exemption rules for salaried employees.

In order for an employer to qualify for an exemption with respect to each of the categories of "white collar" employees, (i) an employee must be paid a predetermined and fixed salary, not an hourly wage, (ii) the amount of salary must meet certain minimum requirements, and (iii) the employee's job duties must primarily involve managerial, administrative, or professional duties. The key changes under the proposed DOL rules involve an increase in the minimum salary requirements and a refinement of the numerous tests pertaining to the primary job duties of each class of exempt employees.

Currently, there are two salary thresholds for each class of employee. The first threshold is a minimum salary threshold. For executive and administrative employees, this minimum salary threshold is $150 per week. For professional employees, this minimum salary threshold is $170 per week. If a salaried employee is paid below the minimum threshold, then the minimum wage and overtime requirements apply. The second threshold applies to all executive, administrative, and professional employees and is $250 per week. If an employee is paid a salary between the minimum threshold and the second threshold, then a so-called "long test" applies with respect to his or her primary job duties to determine if the employee is exempt from minimum wage and overtime requirements. If an employee is paid a salary equal to or above the $250 threshold, then a so-called "short test" applies with respect to his or her job duties to determine if the employee is exempt. Not surprisingly it is tougher to find an employee to be "exempt" under the long "duties" test than it is under the short "duties" test. Both tests are supposed to ensure that the employee is devoting most of his or her time to administrative, executive, or professional duties if he or she is to be exempted from the minimum wage and overtime requirements.

Under the proposed DOL rules, there would be only one threshold of $425 which would apply to all executive, administrative, and professional employees, and the "short" and "long" duties tests would be replaced with a single standardized duties test. Thus, if a salaried employee received a weekly salary less than $425, the minimum wage and overtime requirements would apply. If the employee received a weekly salary of at least $425, then the new "duties" test would be applied to determine if the employee were exempted from minimum wage and overtime requirements.

Under the proposed rules, the DOL claims that the single "duties" test is simpler and clearer than the current long and short duties test. For example, to be exempt under the current rule, the duties of a salaried administrative employee, who earns at least $150 but below $250 per week, must include the exercise of discretion and independent judgment. The new standard, which the DOL believes will be less confusing, is that an administrative employee must hold a "position of responsibility," which is defined as performing work of substantial importance or performing work requiring a high level of skill or training. Whether this new standard is any more workable than the previous standard remains to be seen. The proposed rule also eliminates the requirement that a salaried executive, administrative, or professional employee devote no more than 20% of time (40% in the case of retailers) to activities unrelated to exempt work.

The retail industry is likely to be among the groups most affected by the proposed changes. Retailers should stay tuned to see if any changes are made to the proposed rules when they are finalized and should be ready to make appropriate changes to their business practices. The DOL has made clear that along with the proposed changes will come increased enforcement actions by the agency.

Note that in addition to the increased salary thresholds and revised duty tests discussed in this summary, there are numerous other proposed changes that employers should review with their legal counsel, including proposed changes to the pay "docking" rules regarding absences by exempt employees and changes regarding "highly compensated employees."