On May 18, 2016, the US Department of Labor (“DOL”) issued its long-anticipated Final Rule increasing the minimum required salary for overtime exemptions under the Fair Labor Standards Act (“FLSA”).
Currently, to avoid the obligation to pay employees for overtime (i.e., hours actually worked over 40 hours in the work week), the employer is required to establish that the employee works in an “executive”, “administrative” or “professional” capacity (or fits one of a few other specific exemptions) AND is paid a salary of at least $455 per week or $ 23,660 annually. Under the Final Rule, employees who satisfy one of the exemptions must be paid a salary of at least $913 per week, or $47,476 annually, to be exempt from overtime pay requirements of the FLSA. The new rule goes into effect on December 1, 2016.
The Final Rule also provides for:
- Mandatory updates to the salary threshold every three years. The threshold will be adjusted to keep a standard salary level at the 40th percentile of full-time salaried workers in the lowest-wage Census Region;
- An increase in the “highly compensated employee” (HCE) exemption threshold from $100,000 to $134,004 annually; and
- The ability for employers to use nondiscretionary bonuses and incentive payments to satisfy up to 10% of the new salary threshold.
The Final Rule does not alter the standard duties tests for the executive, administrative and professional exemptions or the additional specific exemptions.
The DOL estimates that the Final Rule will impact 4.2 million workers nationwide and virtually all employers, large and small alike. To comply with the new Final Rule, most employers will be required to:
- Raise exempt employees’ salaries to at least $47,476 per year; or
- Convert the applicable employees from salaried to hourly and pay time and a half for all overtime worked, or limit the employees’ work to 40 hours a week.
There are, of course, other factors to consider. Employers should carefully determine the best course of action to achieve compliance with the Final Rule before the December 1, 2016 deadline. Please contact David Lawrence at Couzens Lansky for assistance navigating the FLSA overtime requirements or for any other questions regarding employment law.
Email David, (248) 489-8600