United States: Changes To The FLSA's White Collar Exemptions Are Finally Here! Higher Salaries And More Overtime, Here We Come

Last Updated: May 25 2016
Article by Evan Pontz, Seth Ford and Ashley Hager

The U.S. Department of Labor (DOL) announced the final version of their long-awaited overtime exemption rule today, which makes notable changes to the requirements for employees to qualify under the Fair Labor Standards Act's (FLSA) "white collar" exemption. The most noteworthy change is an increase in the required salary level for exempt employees to $47,476 per year, but there are other important changes as well.

The rule first surfaced nearly a year ago in June 2015 and it has been a concern of all employers since then. The stated goal of the rule is to expand federal overtime regulations so that more than 4 million more workers will likely be entitled to overtime.

The final rule issued today contains two small bits of good news for employers: First, the rule will not take effect until Dec. 1, 2016, so employers will have more than six months to prepare and make any necessary changes to their pay structures and to consider white collar exemptions currently applied to their employees. Second, the original proposed version of the rule issued last year had a minimum salary threshold of an estimated $50,440 per year, but in the final rule the DOL lowered that figure by about $3,000 to $47,476 annually.

Under current regulations, executive, administrative, professional, outside sales and computer employees have to satisfy job duties related tests and be paid at least $455 per week — or $23,660 annually — on a salary basis to be exempt from minimum wage and overtime requirements under the FLSA. But the final rule issued today dramatically changes the required salary level. The DOL's final rule sets that salary amount at $47,476, equivalent to the 40th percentile of weekly earnings for full-time, salaried workers in the nation's lowest income region. This amounts to a projected minimum required salary of $913 per week, more than twice the currently required level. Also, that salary amount will no longer be fixed; instead, it will automatically be updated every 3 years with the intent to keep it at the 40th percentile benchmark. (Current estimates are that the threshold will increase to over $51,000 in 2020, but a final number will be issued in August 2019.) Those exempt employees will still also have to continue to meet the job duties tests for their particular exemption, which are not being changed (at least not in this final rule).

Further, for those employers who have highly paid workers, the final rule will also raise the overtime eligibility threshold for those highly compensated workers from $100,000 to about $134,000. And in an another change that may help at least some employers a bit as they cope with this new rule, the DOL indicated that employers will now be allowed to count nondiscretionary bonuses and commissions paid to exempt employees toward up to 10% of the required salary threshold. Under the existing rule, none of that compensation was applied to an employee's meeting the salary threshold for being exempt under the FLSA.

Along with issuing the final rule today, the DOL also released three technical guidance documents designed to help various types of employers to make changes to get in compliance with the final rule by December 1st. Those documents and other information from the DOL on the rule are available now at www.dol.gov/featured/overtime.

This rule, its application to the workplace, and determining which workers are or are not exempt employees remains a tricky area of the law. FLSA lawsuits, many involving allegations of misclassification and unpaid overtime, continue to be among the fastest growing types of litigation across the country. This rule will only raise the stakes for employers on being right about who are and are not properly exempt employees. Wise employers will consult with counsel and HR professionals now to make sure they can get in compliance with this rule by December 1, 2016. 

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