On May 17, 2016, the U.S. Department of Labor ("DOL")
announced the final rule updating the requirements for employees to
qualify for exemptions from the overtime requirements under the
Fair Labor Standards Act ("FLSA"). The final rule, which
takes effect on December 1, 2016, represents a
dramatic change from the existing rule.
Under the existing rule, which has been in effect since 2004,
employees must be paid a minimum salary of $455 per week ($23,600
annually) to qualify for the "EAP" – executive,
administrative, professional – exemptions from the FLSA's
overtime requirements. Under the new final rule, the salary level
will increase to $913 per week ($47,476 annually).
Beginning January 1, 2020, the salary level will update
automatically every three years to the 40th percentile of full-time
salaried workers in the lowest-wage U.S. Census region. The DOL
estimates that this figure will be $51,168 in 2020. However, the
final rule will allow up to 10 percent of the salary level
threshold to be met through the payment of non-discretionary
bonuses, incentive pay, or commissions. In order for these payments
to count towards the salary level, they must be made on at least a
quarterly basis.
The final rule also updates the total annual compensation level
above which Highly Compensated Employees (HCE) are ineligible for
overtime. The new level is $134,004 per year, which is up from the
current $100,000 per year. The HCE threshold will automatically
increase every three years to the 90th percentile of full-time
salaried workers nationally, which the DOL estimates will be
$147,524 in 2020.
The final rule made no changes to the "duties" test for
employees to qualify for the EAP exemptions. Some believed that the
DOL would include in the final rule the quantitative test from the
California Labor Code that an employee must spend more than
one-half of his or her time performing exempt duties in order to
qualify for the EAP exemptions, but the DOL did not incorporate
this test into the final rule. The DOL stated that the updated
salary level, coupled with the automatic updates to the new salary
level, will serve as the most effective way of determining which
employees should be considered exempt.
The final rule reflects that the DOL took into consideration
concerns from the business community raised in response to the
proposed rule issued in June 2015. The final rule reduced the
proposed salary level from $50,440 to $47,476, lengthened the
implementation period from 60 days to six months, and left the
duties test unchanged. However, there is no sugar coating the fact
that six months from now, employees must be paid a salary of more
than double the current salary level test in order to qualify for
the EAP exemptions. Employers will have to raise the salaries of
exempt employees to meet the new salary level, or re-classify
exempt salaried employees to nonexempt hourly and manage the
overtime they work.
Please contact the authors of this client alert or any members of
Dickinson Wright's Labor and Employment practice group for more
information about how your business should implement the DOL's
final overtime rule.
This client alert is published by Dickinson Wright PLLC to
inform our clients and friends of important developments in the
field of labor and employment law. The content is informational
only and does not constitute legal or professional advice. We
encourage you to consult a Dickinson Wright attorney if you have
specific questions or concerns relating to any of the topics
covered in here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.