The Fair Labor Standards Act ensures minimum wage and overtime pay protections for most employees covered by the act. However, some executive, administrative and professional employees are exempt from those protections.
On May 18, 2016, the Department of Labor (“DOL”) announced some key points from its final rule updating 2004 regulations concerning the salary and compensation levels required for exempt employee status. The new rule will take effect on December 1, 2016.
The new rule
- Raises the salary threshold from $23,660 to $47,476 a year, or from $455 to $913 a week. Exempt employees must make a minimum salary each week to be exempt from the overtime requirements. The new rule doubles the current salary threshold required to exempt an employee from overtime.
- Updates the salary threshold every three years. The updates will ensure the threshold is maintained at the 40th percentile of full-time salaried workers in the lowest income region of the country. Based on projections of wage growth, the threshold is expected to rise to more than $51,000 with the first update on January 1, 2020.
- Raises the “highly compensated employee” threshold from $100,000 to $134,004. Above this salary threshold only a minimal showing is needed to demonstrate that an employee is not eligible for overtime. This exemption was designed to ease the burden on employers in identifying overtime eligible employees since it is more likely that workers earning above this high salary level perform the types of job duties that would exempt them from overtime requirements.
- Responds to employers’ concerns by making no changes to the “duties test” and allowing bonuses and incentive payments to count toward up to 10 percent of the new salary level.
Workers earning more than the salary threshold are still subject to the duties test to determine eligibility for overtime. In their comments to the proposed rule, employers argued that changing the duties test would be difficult and costly to implement, and the final rule leaves the existing duties test in place. Additionally, for the first time, employers will be able to count bonuses and commissions toward as much as 10 percent of the salary threshold.
What you should do now
The DOL estimates that 4.2 million workers will lose their exempt status when the rule goes into effect. Employers have until December 1, 2016, to review currently exempt employees and ensure compliance with the new rule. Should you need assistance with strategies to comply with the DOL’s regulations, or have any questions regarding the potential impact on your business, please contact any member of Gunster's employment law team at 561-650-1980.
