Legal Updates for Employment Law - Special Alert
DOL Issues Final Rule On FLSA Overtime Exemptions – What Employers Need to Know
By Maureen P. Fitzgerald, Esq.
In 2014, President Obama directed the Department of Labor (DOL) to update the regulations as to which white collar workers qualify as exempt from the overtime requirements of the federal Fair Labor Standards Act (FLSA). In 2015, the DOL released a proposed update, and, after a period of public comment, the DOL issued its Final Rule on May 18, 2016.
The Final Rule makes significant changes that will take effect on December 1, 2016. As a result of these changes, millions of employees will lose their present exempt status. Employers should be aware of the following key changes:
- The new minimum salary level threshold required for the executive, administrative and professional “white collar” exemptions will be increased from $455 a week ($23,660 per year) to $913 per week ($47,476 per year).
- The Final Rule now allows employers to count nondiscretionary bonuses, incentive payments and/or commissions if the employer pays them at least quarterly, towards up to 10 percent of the new salary threshold.
- The Final Rule makes similar changes to the exemption for "highly compensated" employees by increasing the minimum compensation threshold for this exemption from $100,000 to $134,004 per year. Of that amount, at least $913 per week must be paid on a salary basis.
- Both of these new thresholds will automatically increase every three years going forward. For "executive," "administrative" and "professional" exemptions, the salary threshold will be adjusted to the 40th percentile of full-time, non-hourly workers in the region of the country with the lowest average wages. For the "highly compensated employee" exemption, the salary threshold will be adjusted to the 90th percentile of full-time, non-hourly workers nationally.
These salary threshold changes do not impact employee exemption categories that do not include a salary test component, such as the outside sales exemption, employees exempt under the Motor Carrier Act exemption, employees practicing law or medicine, or academic administrative personnel. But they will impact employees in many industries. Employers should review their exemption classifications and determine how to address workers who are currently properly classified as exempt under the executive, administrative or professional exemption but make less than $47,476 per year. In some cases, it may be cost efficient to raise an employee's salary to meet the new threshold. In other cases, it may make sense to reclassify employees as non-exempt and pay them overtime pursuant to the FLSA. There is no one-size-fits-all solution to the new Final Rule. As December 1, 2016, approaches, employers need to be prepared to implement payroll changes.
Questions about the Final Rule may be directed to Maureen P. Fitzgerald at email@example.com, or Practice Group Chair, Ronda K. O'Donnell, at firstname.lastname@example.org.
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