The United States Department of Labor (“DOL”) yesterday released its long awaited final rule which revises the salary test for the “white collar” exemptions to the Fair Labor Standards Act (“FLSA”). The new rule will be effective December 1, 2016 and is expected to impact some 4.2 million salaried workers based simply on the revision of the salary threshold for exemption. The rule is similar to the proposed rule on which the DOL received an unprecedented number of comments (270,000) from businesses, workers, organized labor and non-profit organizations, but is different in some respects. The highlights are as follows;
- The minimum salary level for the executive, professional and administrative exemptions is raised from $455 per week to $913 per week, the first increase since 2004.
- The salary threshold for automatic exemption as a highly compensated employee (“HCE”) is increased from $100,000 per year to $134,004 per year.
- The salary threshold will be increased automatically every three years beginning January 1, 2020. New salary levels will be posted by the DOL 150 days in advance of their effective date.
- The final rule will allow up to 10% of the salary threshold for non-HCE employees to be met by non-discretionary bonuses, incentive pay or commissions provided the payments are made at least quarterly.
- No changes are made to the duties test which determines whether white collar salaried workers earning more than the salary threshold are ineligible for overtime pay based on the jobs they perform.
The DOL states that the revised regulation will “put more money into the pockets of many middle class workers – or give them more free time.” Businesses have been aware of this impending change since President Obama directed the Secretary of Labor in March of 2014 to update the regulations to reflect the current economy and workforce. Now, however, is the time for those who have not yet done so to prepare for the change. Preparations should include reviewing and updating job descriptions to reflect accurately the tasks performed by workers and reviewing compensation levels to determine whether it is more beneficial or consistent with the law to revise salaries or reclassify employees as non-exempt.
As more information develops, we will continue to post periodic updates and advice on preparing for the changes.