BY: EDWARD S. SCHENK AND MICHAEL B. STEELE
The day has arrived. After a long wait, on May 17, 2016, the U.S. Department of Labor (DOL) issued its final rule dealing with overtime exemptions under the Fair Labor Standards Act (FLSA). There were some changes from the DOL’s initial proposed rule, but the outcome and impact on many businesses will largely be the same.
Effective December 1, 2016, the minimum salary threshold to qualify for the FLSA overtime exemptions is increasing from $455/week (approximately $23,660/year) to $913/week (approximately $47,476/year). Employers may initially be relieved that this figure is not the $50,000+ salary threshold previously suggested by the DOL, but they should be aware that the final rule does retain a controversial concept from the proposed rule. Specifically, there will be automatic increases to the salary basis requirement every three (3) years, beginning on January 1, 2020. The increase will be tied to the 40th percentile of full-time salaried workers in the lowest-wage Census region. The DOL estimates that in 2020, the salary basis requirement will increase to just over $51,000. The DOL will give employers 150-days’ notice before any automatic increase becomes effective.
Other key points from the new rule include:
- Increasing the minimum salary threshold to qualify as a “Highly Compensated Employee” (HCE) from $100,000 to $134,000 annually. Under the automatic increases, the DOL estimates that this HCE salary requirement will be over $147,000 in 2020.
- The rule allows up to 10% of the salary threshold for non-HCE employees to be met by including non-discretionary bonuses, incentive pay, or commissions, if paid at least quarterly.
- There are no changes to the “Duties Test” for white collar exemptions.
Again, with an effective date of December 1, 2016, employers have just over five (5) months to get their policies and payment systems in order.
The DOL’s summary page can be found here.
The complete final rule can be found here.
If you have any questions concerning the requirements of the final rule, you may contact any of the Labor & Employment attorneys at Williams Mullen.
