On Tuesday, the Department of Labor’s Wage and Hour Division released its highly anticipated proposed changes to the Part 541 overtime and minimum wage exemption regulations. These rules implement Section 13(a)(1) of the Fair Labor Standards Act, and cover Executive, Administrative and Professional employees.  Overall, the proposal is a mixed bag for employers. It dramatically increases the salary level necessary to claim the exemptions, but for the time being, refrains from making changes to the duties required of exempt employees.

DOL’s most important proposal will more than double the minimum salary requirement from the current $455 per week (or $23,660 per year), to about $970 per week, or $50,440 per year when the rule would take effect in 2016. This level is based on annual compensation applicable to the top 40th percentile of U.S. workers. In addition, DOL proposes to index this amount to either the 40th percentile level or the Consumer Price Index, meaning that it will be annually adjusted. Employees paid less than the minimum salary will not be exempt from overtime and minimum wage obligations regardless of their job duties. In addition, the highly compensated employee salary level under Part 541 would rise from $100,000 to $122,148 and would be similarly indexed.

Somewhat surprisingly, the proposed rules do not include specific changes to the duties tests for the exemptions. DOL stated that the large increase in the minimum salary was partially intended to screen out exemption claims for employees whose duties likely do not meet the current duties tests. The agency therefore asks for comments on whether the duties tests need to be changed in light of these higher salary requirements. DOL specifically asks for comments on whether it should adopt the so-called “California rule” that would set a 50 percent maximum for non-exempt duties performed by exempt workers, and prohibit concurrent exempt and non-exempt work from counting toward the non-exempt duties threshold.

DOL will accept comments for 60 days following formal publication of the proposed rules. They are likely to trigger an avalanche of complaints from business and employee stakeholders. Many of these comments will likely center on DOL’s estimate that the proposal will result in reclassification of five million U.S. workers from exempt to non-exempt, and the financial burden placed on employers as a result of increased overtime pay.

The new rules will not become effective until 2016 at the earliest, given the delays caused by the regulatory process and inevitable lawsuits. Although the rules are only proposed at this time, employers should review these salary levels in light of their current exempt employees. These proposals give employers advance warning about future labor budget adjustments based on the need to either increase salaries or begin paying overtime.