It. is. here. You have read my blogs on this topic for almost one year and last night, the Department of Labor made good on its promise. The “Final Rule to Update the Regulations Defining and Delimiting the Exemption for Executive, Administrative, and Professional Employees” was released. Here is what you need to know:
1. The “Salary Level” Test Changed. Prior to the Final Rule, an employee meeting the requisite duties tests for the White Collar Exemptions could be classified as exempt from the Fair Labor Standards Act, and thereby, not covered by the Act’s overtime and minimum wage requirements if the employee was paid $455 per week ($23,660 annually). Under the Final Rule, to retain the exemption, such employees must be paid $913 per week or $47,476 annually. This threshold is lower that the DOL’s proposed salary threshold of $50,440. Importantly, the Salary Level test was also changed to allow employers to use non-discretionary bonuses and incentive payments (including commissions) to satisfy the new salary level – a factor of significant benefit to employers.
2. The “Duties” Test Did Not Change. The same duties standards for satisfying the White Collar Exemptions, i.e., the Administrative, Executive, Professional exemptions, are the same.
3. The “Salary Level” Will Increase Every 3 Years. Under the Final Rule, the standard salary level was set at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Regions, which is currently the South. This threshold will automatically update every three years to maintain the level around this percentile.
4. The “Highly Compensated Employee” Exemption Changed. Prior to the Final Rule, the total annual compensation necessary to satisfy the Highly Compensated Employee exemption was $100,000. After the Final Rule, the threshold for satisfying this exemption, with its minimal duties test, is $134,004. This threshold is also subject to automatic updates every three years.
When do you need to take action? NOW. Although the DOL gave businesses longer than the requisite 60 days to comply, it is in an employer’s best interest to take immediate toward compliance. The official effective date of the Final Rule is December 1, 2016.
What should you do? Pull salary information of employees and review whether the changes will jeopardize any exemption classifications. If so, you must make some decisions: Do we want to increase the salary of the employees to ensure they remain exempt? Should we reclassify certain employee as non-exempt and start paying overtime? Should we modify our Employee Handbook to prohibit overtime work without permission from a supervisor? Do we need to modify our timekeeping policies? How do we explain these changes to the staff? The most efficient method – an internal wage and hour audit, which will identify potential risks of litigation. A FLSA audit is the best method for avoiding unnecessary damages and legal expenses. Using legal counsel to conduct such a review is essential – offering attorney-client confidentiality, as well as assurance that your business’s policies are compliant with the most recent state and federal laws and regulations. If you have questions on the scope or availability of FLSA audits for your business, contact me.