In May 2016, the U.S. Department of Labor (DOL) published a final rule modifying salary requirements for white-collar, salaried employees who are exempt under the Fair Labor Standards Act (FLSA). The updated rule impacts employers’ ability to treat certain employees as exempt from receiving overtime pay. The new regulation will raise the salary threshold from $455 per week to $913 per week (or $47,476 annually for a full-time worker) and ensure protections to an estimated 4.2 million workers. The latest rules go into effect on December 1, 2016.
White-collar employees typically perform job duties in an executive, administrative, or professional capacity. Full-time salaried, white-collar workers who are paid more than $913 weekly ($47,476 annually) qualify for exemption under the new regulations. The regulations also provide an exemption for certain highly compensated employees (HCE) who earn above $134,404 in total annual compensation and satisfy a minimal duties test. The salary threshold for both non-highly compensated and HCEs will automatically be updated every three (3) years. The final rule allows employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.
The new regulations will surely have a significant impact on employers. To comply with the changes, employers should explore their options and implement changes as necessary. Some options to consider include:
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Raise Salaries. Consider raising salaries of workers who are close to the new salary level and work overtime regularly so that they maintain their exemption status.
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Pay Overtime When Necessary. Employers may choose to continue paying newly overtime-eligible workers the same salary, and pay them overtime whenever they work more than 40 hours in a week.
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Convert Employees from Salaried to Hourly. White-collar workers who earn less than $47,476 per year may be changed from salaried employees to hourly employees.
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Modify Hours and Staff Workload. Evaluate and adjust workload distribution, time, and staffing levels to ensure jobs are managed appropriately for white-collar employees whose earnings are below the salary threshold. This may mean hiring additional staff or making other changes.
Employers should take time to assess their recordkeeping procedures, wage and hour policies, and employee classifications to ensure they comply with the new regulations. More information regarding the updated regulations is available on the DOL’s website at https://www.dol.gov/featured/overtime.
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