On May 18, 2016, the U.S. Department of Labor (DOL) issued its Final Rule for the salary cutoff necessary for many employees to qualify as exempt from overtime under the Fair Labor Standards Act (FLSA). Under the new rule, which is due to go into effect on December 1, 2016, the minimum salary for most exemptions will be doubled.
The FLSA requires that employees be paid overtime at the hourly rate of time-and-a-half when they work in excess of 40 hours in a work week. To be exempt from receiving overtime pay under the FLSA, employees must qualify for one of the “white collar” classifications or be a highly compensated employee. The white collar exemption requires that the employee meet the duties test for either the executive, administrative, or professional classification and be paid a predetermined, regular, fixed minimum salary.
The Final Rule changes the treatment of exempt status in the following ways:
- The Final Rule more than doubles the threshold amount that white collar employees must earn, from $455 per week or $23,660 per year to $913 per week or $47,476 per year. (These salary thresholds do not apply to certain positions, such as outside salespersons.)
- The salary threshold requirement for the highly compensated employee also increases from an annual salary minimum of $100,000 to $134,004.
- DOL will now allow employers to include nondiscretionary bonuses, incentive payments and commissions to reach these salary threshold amounts.
- These threshold salary levels will automatically increase every three years by relying on certain economic indices.
Although DOL had initially proposed to revise the “duties” tests for the white collar classifications, it decided not to make any changes to the standard duties tests for these classifications.
Employers should prepare now for the changes to the overtime exemption that will take effect on December 1, 2016 by:
- Auditing the current positions that are exempt from overtime requirements to confirm that those positions will remain exempt under the increase in the salary threshold;
- Conducting a cost-benefit analysis, factoring in the expected added overtime costs for exempt employees who make less than the new cut-off to determine whether to provide salary increases so that these employees would maintain their exempt status; and
- Implementing a tracking system to account for the working time of workers who will no longer qualify as exempt in order to comply with overtime requirements.
Many business and employer groups have voiced their dissatisfaction with the Final Rule, and they have asked others to join them in supporting companion bills filed in the House and Senate (S. 2707 / H.R. 4773) in March 2016 that would nullify the DOL’s Final Rule. Employers should not depend on the passage of these bills and instead prepare for the likely implementation of the Final Rule.