Today, the US Department of Labor announced the implementation date for its final rule changes related to “white collar” exemptions to the Fair Labor Standards Act (“FLSA”). The deadline for compliance with the new rule is December 1, 2016.
The FLSA has two main purposes: 1) to set the federal minimum wage; and 2) provide for overtime pay for non-exempt employees who work more than 40 hours in a work week. However, the FLSA provides certain exemptions to the overtime rule. The new rule primarily affects the executive, administrative, professional, and highly compensated employee exemptions.
The Final Rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt. Specifically, the Final Rule:
- Sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South ($913 per week; $47,476 annually for a full-year worker);
- Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004); and
- Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.
Additionally, the Final Rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.
This means that employees who are classified currently as exempt using the executive, administrative, or professional exemptions must earn at least $47,476 annually. If not, they do not meet the salary threshold under the new rule and must be paid time and a half for any hours worked over 40. The same is true for highly compensated employees, but their salary threshold has been set to $134,004 annually. These salary levels are set to be re-examined in three years on January 1, 2020.
These new rules and the potential impact on employers, make this an opportune time for employers to review their current exempt employees to ensure continued compliance with the FLSA. If you would like Smith Reed & Armstrong to assist you in this review, please click here.