Department of Labor Releases Final Overtime Rule

Today, the Department of Labor (DOL) issued its long-awaited final overtime rule. The new rule significantly increases the minimum salary and compensation levels to satisfy the “white collar” and “highly compensated employee” (HCE) exemptions under the Fair Labor Standards Act (FLSA). The new rule will go into effect on December 1, 2016, giving employers 6 months to prepare and implement changes to ensure compliance.

Background

White Collar Exemption. The FLSA’s “White Collar Exemption” excludes certain executive, administrative and professional employees from federal overtime requirements.
To meet the requirements of the White Collar Exemption, an employee must satisfy (i) a “salary basis test” (the employee must be paid a predetermined, fixed salary not subject to reduction); (ii) a standard “salary level test” (the employee must be paid a minimum salary); and (iii) a “duties test” (the employee must primarily perform certain duties set forth in DOL regulations).

HCE Exemption. To qualify for the HCE Exemption, an employee (i) must earn a minimum annual compensation (paid on a salary basis), and (ii) must satisfy a “duties test” that is less stringent than the one under the White Collar Exemption.

Summary of Final Rule

Salary and Compensation Thresholds. The new rule:

• Changes the standard salary level test for the White Collar Exemption, and increases the salary threshold from $455 per week to $913 per week ($47,476 per year); and
• Increases the total annual compensation level for HCEs from the current $100,000 to $134,004 per year.

Bonuses, Incentive Payments and Commissions. The new rule:

• Will, for the first time, allow up to 10% of the standard salary threshold for non-HCEs (executive, administrative and professional employees) to be met by non-discretionary bonuses, incentive pay, or commissions, provided those payments are made on at least a quarterly basis. (The DOL previously disallowed consideration of these payments when calculating standard salary thresholds for executive, administrative and professional employees.)
• The rule for HCEs remains the same.
  • The standard salary level for the White Collar Exemption must be paid without considering non-discretionary bonuses, incentive pay, or commissions.
  • However, the amounts may be taken into consideration to satisfy the total annual compensation level for the HCE Exemption.

Automatic Updates. Under the new rule:

• An automatic increase will occur every 3 years in the minimum standard salary level under the White Collar Exemption, beginning January 1, 2020. Each update will raise the salary threshold to the 40th percentile of full-time salaried workers in the lowest-wage Census region.  The DOL estimates the threshold will be $51,168 in 2020.
• The HCE threshold will increase every 3 years to the 90th percentile of full-time salaried workers nationally, which the DOL currently estimates will be $147,524 in 2020.
• The DOL will post new salary levels 150 days in advance of their effective date, beginning August 1, 2019.

Additional Considerations for Employers.  Employees may also want to consider the following:

• The various “duties tests” for the White Collar Exemption remain unchanged. A white collar employee – whether executive, administrative or professional – must still satisfy all applicable duties test.
• Many states have their own overtime laws. The new rule does not impact state laws governing employee classification and overtime requirements.  Therefore, employers must ensure compliance with applicable state classification and overtime laws in addition to federal law.  If the state law is more generous to an employee than the FLSA, state law will apply.
• The new rule may also impact employee benefits, where eligibility for such benefits is based on an employee’s classification as exempt or non-exempt.

Contact Information.  For more information from Mazursky Constantine, please contact Don Mazursky (404.888.8840), Randall Constantine (404.888.8877) or Emily Friedman (404.888.8871).  For information from VCG Consultants, please contact Leslie Schneider (770.863.3617).

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