Late on May 17, 2016, the United States Department of Labor (DOL) published the final rule updating the regulations governing whether executive, administrative, and professional employees (white collar workers) are entitled to minimum wage and overtime under the Fair Labor Standards Act (FLSA). The new regulations are slated to take effect on December 1, 2016, but are subject to review in 2017 by a new President and a new Congress pursuant to the Congressional Review Act’s clawback provision.
Under the current regulations, an employee is considered exempt if the employee satisfies the duty requirements and is paid at least $455 per week ($23,660 annually). Effective December 1, 2016, the minimum threshold salary required to be exempt will increase to $913 per week ($47,476 annually). This figure is based on the standard salary level at the 40th percentile of weekly earnings for full-time salaried workers in the lowest-income Census region, currently the South. The change marks the first increase of its kind since 2004. The new regulations also increase the highly compensated employee exemption annual salary threshold from $100,000 annually to $134,004. This figure is based on the standard salary level at the 90th percentile of weekly earnings for full-time salaried workers nationally.
Moreover, unlike the current salary threshold that remained constant for 12 years, the new regulations provide for the salary thresholds to increase automatically every three years, beginning January 1, 2020. The standard salary will be updated to maintain a threshold equal to the 40th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region. Similarly, the highly compensated employee salary will be updated to maintain a threshold equal to the 90th percentile of annual earnings of full-time salaried workers nationally. Mercifully, in light of the monumental changes to the salary thresholds, the new regulations do not alter the existing duty tests for any of the white collar exceptions.
The new regulations also allow nondiscretionary bonuses and incentive payments such as commissions to satisfy up to 10 percent of the standard salary threshold ($47,476 annually). However, nondiscretionary bonuses and incentive payments cannot be used to satisfy the highly compensated employee salary threshold.
Employers are advised to immediately (1) review whether their salaried positions satisfy the duties and salary components of the FLSA exemption, (2) analyze the financial impact of reclassifying employees as nonexempt and the need to pay overtime, (3) review whether affected positions may require modification of assigned job tasks, (4) consider whether a fluctuating workweek written agreement may be appropriate, and (5) consider the impact of reclassification on your organization’s finances, and the reactions of affected employees.
A one-page summary of the new provisions is provided here.
This client alert is intended to inform clients and other interested parties about legal matters of current interest and is not intended as legal advice.