In July of last year, I wrote a blog entry about the Wage and Hour Division of the Department of Labor (DOL)’s issuing a proposed rule revising the “white collar exemptions” to the Fair Labor Standards Act (FLSA) in order to expand the number of employees who would be eligible for overtime pay. On May 18, 2016, the DOL issued the final rule entitled “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees under the Fair Labor Standards Act.” The DOL estimates that the new regulations will extend coverage to 4.2 million employees, including 119,000 in Virginia.
To be classified as exempt under the executive, administrative and professional exemptions, an employee must meet the “salary basis test” and the “duties test.” Being paid on a salary basis means being paid a set amount each workweek without regard to the quality or quantity of work performed in a week. The existing salary basis threshold for an exempt employee is $455/week or $23,660. Under the new rule, that amount more than doubles. An employee must earn at least $913/week, or $47,476 annually, to be exempt. Under the current highly compensated employee exemption, an employee must earn $100,000/year. That figure jumps up to $134,000/year under the new regulations. Also, employers can now use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary level.
The final rule includes a mechanism by which the salary basis thresholds will be raised every three years starting January 1, 2020, so that they remain relevant.
The final rule will be effective December 1, 2016. In preparation, you should assess your workforce under the various duties tests to make sure that your employees are properly classified. You should also consider limiting the number of hours non-exempt employees will work and evaluate other strategies to minimize the financial burden that the new rule will have on your organization. For assistance in properly classifying workers, defending a lawsuit or government audit, or for other employment matters, feel free to contact me.