In July 2015, The U.S. Department of Labor released a Notice of Proposed Rulemaking to increase the weekly salary threshold for the Executive, Administrative, Professional and Professional white collar exemptions from the federal overtime pay provisions under the Fair Labor Standards Act (FLSA).
On Wednesday, May 18, 2016, the DOL announced the release of their Final Rule to Update the Regulations Defining and Delimiting the Exemption for Executive, Administrative, and Professional Employees under the FLSA, effective December 1, 2016.
The following revisions are included in the rule:
An increase to the minimum salary level for exempt workers in the Executive, Administrative, and Professional white collar exemptions.
- The threshold will be indexed to the 40th percentile of the weekly earnings for full-time salaried workers in the lowest income Census region (currently the South). On December 1, 2016, the threshold will increase from $455/week ($23,660/year) to $913/week or $47,476/year.
- The total annual compensation requirement needed to meet the highly compensated employees (HCEs) exemption will increase from $100,000/year to $134,004/year, equal to the 90the percentile of the weekly earnings for full-time salaried workers nationally.
Salary thresholds for the executive, administrative, and professional exemptions as well as highly compensated employees (HCEs) will be adjusted every three years to ensure the threshold is maintained at the 40th percentile of full-time salaried workers in the lowest income census region. Based on projections of wage growth, the threshold is expected to rise to more than $51,000 with the first update on January 1, 2020.
- Non-discretionary bonuses and incentive payments (including commissions) may be counted toward up to 10 percent of the new standard salary level for the executive, administrative and professional exemptions, when applied as detailed in the Final Rule.
According to the DOL:
4.2 million workers will be affected by the Final Rule based on their current salaries. These workers are currently ineligible for overtime. The Department estimates that most of them (4.1 million) will become eligible for overtime when they work more than 40 hours (i.e., they will be converted to overtime-eligible status), while others (100,000) will receive a raise so that their salary is above the new threshold.”
While the DOL has announced the Final Rule and it will be published in the Federal Register on May 23, the provisions will not take effect until December 1, 2016. This may seem like enough time to adapt, but these changes may result in difficult decisions and administrative tasks that can quickly consume your schedule.
That’s why it’s important to have a plan in place before these changes take effect. With a solid plan, you can make the necessary adjustments to help mitigate disruption to your business operations.