By Michele L. Jakubs*
On May 18, 2016, the United States Department of Labor (“DOL”) announced it will publish its final rule increasing the salary thresholds for exemptions under the Fair Labor Standards Act (“FLSA”). The final rule sets the new salary threshold for “white collar” exemptions at $47,476 annually. For the highly-compensated employee exemption, the new salary threshold is set at $134,004 annually. The final rule (including the new salary thresholds) goes into effect on December 1, 2016. The changes will have a major impact on employers, as an estimated 4.2 million formerly-exempt employees will become eligible for overtime.
The FLSA generally requires employers to pay employees for any time worked in excess of forty hours per work week at a rate of one-and-a-half times the employee’s regular rate. The FLSA exempts “white collar” and highly-compensated employees from the overtime requirement, provided the employees meet specific criteria.
Employees qualify for an exemption by meeting three criteria: (1) the employee receives a fixed salary; (2) the salary meets the minimum threshold requirement (currently $455 per week, or $23,660 per year); and, (3) the employee’s responsibilities primarily involve executive, administrative, or professional duties. Highly-compensated employees who regularly perform one or more exempt duties also are exempt.
Under the final rule, the salary threshold for an exemption is set at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region. When the rule goes into effect on December 1, 2016, the salary threshold will increase to $913 per week, or $47,476 per year, more than twice the current threshold. Employers may, for the first time, use non-discretionary bonuses and incentive payments to satisfy up 10% of the new salary threshold. For the highly-compensated employee exemption, the new salary threshold is set at the 90th percentile of full-time salaried workers nationally, and will increase from $100,000 to $134,004 on December 1, 2016. These salary thresholds will be updated automatically every three years to maintain salary levels at the referenced percentiles.
The final rule does not make any changes to the existing job duty requirements for the “white collar” and highly-compensated employee exemptions.
In light of the dramatic increases in the salary thresholds, employers should consult with counsel to develop a course of action to ensure compliance with both the salary and duties tests. This change in the law presents an opportunity for employers to review whether employees classified as exempt truly meet the duties test, and the new salary threshold, under the FLSA and make any necessary corrections. The implications of misclassifying employees are widespread and costly and may result in litigation or an investigation by the DOL. With just over six months to prepare and implement a plan, employers should begin the process as soon as possible.
*Michele L. Jakubs, an OSBA Certified Specialist in Labor and Employment Law, practices in all areas of labor and employment law and is particularly adept at handling wage and hour issues. If you have questions about how the Department of Labor’s final rule may impact your company, please contact Michele (mlj@zrlaw.com) at 216.696.4441.
