On May 18, 2016, after much anticipation, the Department of Labor (“DOL”) released its final rule updating overtime regulations promulgated under the Fair Labor Standards Act. The final regulations increase the salary basis threshold for the “white collar” overtime exemptions, increase the salary threshold for highly compensated employees, provide for triennial salary threshold increases, and dictate the maximum amount of bonus and incentive pay an employer can count towards the salary threshold. The final rule can be read in its entirety here: https://s3.amazonaws.com/public-inspection.federalregister.gov/2016-11754.pdf.
The background for the new regulations is, of course, that the FLSA requires that employees be paid minimum wage for all hours worked, and overtime pay for all hours worked over 40 in a workweek, unless they are exempt. Currently, in order to be exempt, an employee must generally 1) perform exempt job duties known as the “duties test” and 2) be paid a salary of at least $23,660 annually ($455 per week).
The DOL’s regulations are the first adjustment to the salary threshold in over 40 years: The current white collar exemption level was set in 1975 and has not been adjusted since. In 1975, a salary at that level placed someone in the upper 38 percent of workers. Now, that same salary is just below the poverty line. The new DOL regulations will broaden the pool of workers eligible for overtime – the DOL estimates that the regulations will extend overtime protections to more than 4 million workers nationwide.
Key Provisions of the Final Rule
- The final rule focuses primarily on updating the compensation and salary levels required to qualify as exempt as an Executive, Administrative and Professional worker:
- Increases minimum salary threshold for the white collar exemptions from $23,660 annually to $47,476 annually ($913/week);
- Increases the minimum total annual compensation equivalent for highly compensated employees (“HCE’s”) from $100,000 to $134,004; and
- Establishes a mechanism whereby the exempt salary levels will be automatically adjusted every three years.
- Non-discretionary bonuses, incentives, and commission can comprise up to ten percent of the minimum salary, as long as they are paid quarterly or more frequently.
Employers did win a few points. The regulations did not alter the duties tests for white collar exemptions. The salary threshold increases every three years, not annually, as had originally been suggested. The DOL also provided a lengthy implementation period of over six months, instead of the original 60 days. Finally, the changes provide employers with a window of opportunity to roll out other potential changes to schedules, benefits, and even to reclassify employees currently misclassified as exempt without drawing as much attention to the changes.
The final rule gives employers until December 1, 2016 to adjust and comply with the new regulations. Employers should not delay in auditing their work force to determine which exempt employees fall below the salary threshold. Parsons Behle & Latimer will be hosting Breakfast Briefings in July to address the changes, the impact it will have on your business, and practical strategies to deal with the changes, including.
- Increase or Convert: determining the best options for currently exempt employees paid under the new threshold amount.
- Communicating status changes and potential loss of benefits to newly non-exempt employees who feel “demoted”
- Developing and communicating new overtime rules for your workforce
- Training formerly exempt employees on time-reporting, compliance, and rest and meal breaks
- Managing newly non-exempt employees
If you have any questions in the meantime, please contact Susan B. Motschiedler at 801.536.6923.
