On May 18, 2016, the U.S. Department of Labor ("DOL") announced forthcoming changes to the Fair Labor Standards Act ("FLSA") which will increase the number of employees eligible for overtime pay. The changes announced by the DOL will go into effect December 1, 2016.
Under the FLSA, employers are generally required to pay time and a half to employees working in excess of forty (40) hours per work week, although employees engaged in fire protection or law enforcement may be paid overtime on a "work period" basis from 7 consecutive days to 28 consecutive days in length. Employers are exempted from paying overtime to employees who qualify under so called "white collar" exemptions. An employee is considered "white collar" if he meets a minimum salary threshold and his job duties qualify him as executive, administrative or professional under the FLSA regulations. Exemption also exist for certain "computer employees" and highly compensated employees. The DOL’s new regulations increase the minimum salary threshold for these "white collar" exemptions. Below is an overview of the major changes implemented through the new regulations:
Under current FLSA standards, employers are exempted from paying overtime to employees with a minimum salary of $455 per week or $23,660 per year whose job duties qualify for one of the white collar exemptions, i.e., executive, administrative, professional, etc. Starting on December 1, 2016, the minimum salary threshold for overtime exemptions will be raised to $913 per week or $47,476 per year.
The new FLSA rules will allow for employers to satisfy up to ten percent (10%) of the minimum salary threshold through non-discretionary bonuses or incentive payments paid on at least a quarterly basis. As an example, although an employee’s weekly salary may fall below the minimum weekly threshold of $913, the employee may be exempted if his quarterly bonus pushes his total pay above the minimum threshold and constitutes no more than ten percent (10%) of his salary.
The new FLSA rules will increase the minimum salary needed to qualify as a "highly compensated employee." Currently, employers may exempt employees with an annual salary of $100,000 or more who perform at least one executive, administrative or professional job duty. The new FLSA rule will increase the minimum salary needed to be considered "highly compensated" to $134,004 per year.
No changes will be made to the job duties tests for the "white collar" exemptions.
The DOL will update the minimum salary threshold every three years with the next update scheduled to take effect on January 1, 2020. The next minimum salary threshold will be based upon the pay of full time workers in the 40th percentile of the lowest-wage census region. For "highly compensated workers", the DOL will calculate the threshold based upon the wages of workers in the 90th percentile of full-time salaried workers nationwide. The DOL estimates that the 2020 update will result in a minimum salary threshold of $51,168 per year and a highly compensated salary of $147,524 per year. The DOL will announce the new salary levels on August 1, 2019.
Employers are encouraged to conduct a comprehensive review of their exempt employees to determine whether the exempt status will change as a result of the new minimum salary threshold. Despite these changes, employers may be able to control overtime costs by implantation of policies and effective management.