On May 18, 2016, the Department of Labor (DOL) issued a final rule (Rule) that overhauls overtime regulations under the Fair Labor Standards Act (FLSA), making millions more Americans eligible for overtime pay. The Rule will go into effect on December 1, 2016.
The FLSA guarantees a minimum wage and overtime pay at a rate not less than one and one-half times the employee’s regular rate for hours worked over 40 in a work week. The FLSA provides a number of exemptions, including the “white collar” exemption. This exemption applies to executive, administrative, professional, outside sales, and computer employees. To be considered exempt from overtime pay, employees must be paid on a salary basis at not less than a specified amount and meet certain tests related to their job duties.
The new Rule more than doubles the minimum salary threshold at which white collar employees may be exempt from overtime pay. The current threshold is $23,660, or $455 per week. Under the Rule the threshold is increased to $47,476, or $913 per week.
This means that employers will be required to pay overtime to “white collar” salaried employees making less than $47,476 per year. Under the Rule, employers will be allowed to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new salary level.
In addition to increasing the salary threshold for white collar salaried employees, the Rule also sets the total annual compensation requirement for “highly compensated employees” who can be considered non-exempt in most circumstances. The former annual requirement of $100,000 has been raised to $134,004.
Both the salary and compensation thresholds will automatically update every three years, beginning January 1, 2020. The salary threshold for white collar workers will be updated to reflect the 40th percentile of full-time salaried workers in the lowest income region of the United States. The compensation threshold for highly compensated employees with be updated to reflect the 90th percentile of full-time salaried workers nationally. These automatic updates are designed to prevent the salary and compensation levels from becoming outdated with the passage of time between rulemakings.
It is imperative that employers reassess how they classify their employees to ensure that certain employees are not improperly classified as exempt from overtime pay when the Rule takes effect. Violations of the FLSA can carry steep penalties for employers, and even criminal prosecution for certain willful violations.
If you have questions or would like legal advice on any employment law questions, please contact one of Critchfield, Critchfield & Johnston’s employment law attorneys for personal assistance.