On May 18, 2016, the Department of Labor published a Final Rule updating the salary and compensation requirements for executive, administrative, and professional employees. It fundamentally changes the qualifications for exempt status under the overtime requirements of the Fair Labor Standards Act (FLSA). The Final Rule’s admitted purpose is to extend overtime pay to an estimated 4.2 million workers who are currently classified as exempt. Before the Final Rule takes effect on December 1, 2016, it is important that employers identify affected employees and plan to either compensate them as “non-exempt” (including application of overtime rules as well as record and timekeeping requirements), or increase their compensation to meet the prerequisites of the Final Rule.

In summary, the Final Rule does the following:

  • Sets the minimum salary threshold at $913 per week or $47,476 annually for a full-year worker – doubling the previous minimum threshold;
  • Allows employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new minimum salary threshold, with certain limitations;
  • Sets the total annual compensation requirement for highly compensated employees at $134,004; and
  • Establishes a mechanism for automatically updating the salary and compensation levels every three years, beginning on January 1, 2020.

The Final Rule can be found at: https://www.dol.gov/whd/overtime/final2016/overtime-factsheet.htm.

As many employees will not welcome a change to “non-exempt” status, employers should take care in determining how best to accommodate the required changes, keeping in mind that an employee cannot waive the classification requirements. As both federal and state wage and hour laws are complex and have intricacies that are not always obvious or intuitive, employers are urged to seek legal counsel with questions or when the appropriate classification is not clear. We take this opportunity to remind employers that best practices encourage conducting a periodic classification audit of all positions in order to ensure compliance with ever changing wage and hour requirements, and that changes in classifications require some strategic consideration to avoid highlighting potential liability to plaintiffs’ lawyers.

If you have questions or need assistance in complying with the Final Rule or determining the best approach, please do not hesitate to contact any member of the Fabian VanCott Employment & Labor Group.