In 2014, President Obama directed the Department of Labor (“DOL”) to update the regulations defining which white collar workers are protected by the Fair Labor Standard Act’s (“FLSA”) minimum wage and overtime standards. Last month the DOL issued the long awaited final overtime rules, and employers have until December 1, 2016, to implement them.
The Final Rules raise the minimum salary requirement for the executive, administrative, and professional exemptions from $455 per week to $913 per week, or an annual salary of $47,476. This means that all employees earning less than $913 per week as of December 1, 2016, must be paid overtime for any time worked over 40 hours in a week, regardless of the employee’s position in the company or their assigned duties.
The Final Rules amend the salary basis test to allow employers, for the first time, to use nondiscretionary bonuses, incentives, and commissions to satisfy up to 10%d99f7e4a} of the salary requirement. In order to count towards the salary requirement, these nondiscretionary bonuses, incentives, and commissions must be paid on a quarterly or more frequent basis. At the end of each quarter, employers are permitted to make an additional payment to any employee whose wages for the quarter do not meet or exceed $11,869 in order to satisfy the minimum salary requirement for the claimed exemption.
The Final Rules also increase the minimum salary requirement for the highly compensated employee exemption from $100,000 per year to $134,004 per year. The new 10%d99f7e4a} rule does not apply to this exemption, as employers are already permitted to include nondiscretionary bonuses, incentives, and commissions to the minimum salary requirement once the standard weekly salary requirement is met.
The Final Rules also establish a mechanism for updating the salary levels every three (3) years, with the first update scheduled to take effect on January 1, 2020. Updated salary rates will be published at least 150 days before the effective date. Such regular updates to the salary level test should prevent the regulations from becoming outdated and minimize the impact of future changes on employers.
Congress is currently trying to block the Final Rules from taking effect, but it is unclear whether they have the votes to override a presidential veto. The Final Rules are available here. The DOL’s Fact Sheet outlining the changes discussed above is available here. Please contact us with any questions.
