DOL Issues New Overtime Payment Rules
On May 18, 2016, the U.S. Department of Labor (DOL) announced a final rule regarding overtime wage payment qualifications for the “white collar exemptions” under the Fair Labor Standards Act (FLSA).
The final rule increases the salary an employee must be paid in order to qualify for a white collar exemption. The required salary level is increased to $47,476 per year and will be automatically updated every three years. The final rule does not modify the duties test employees must meet to qualify for a white collar exemption.
Employers will need to comply with this rule by December 1, 2016.
FLSA White Collar Exemptions
The white collar exemptions are minimum wage and overtime pay exemptions available to certain administrative, professional, outside sales, computer and highly compensated employees. To qualify for the white collar exemption, an employee must meet a salary basis test, a salary level test and a duties test. An employee must meet all three tests in order to be exempt from FLSA minimum wage or overtime pay requirements.
- The salary basis test is used to make sure the employee is paid a predetermined and fixed salary that is not subject to reduction due to variations in the quality or quantity of work.
- The salary level test is used to ensure that the employee meets a minimum specified amount to qualify for the exemption. This salary threshold provides employers with an objective and efficient way to determine whether an employee qualifies for a white collar exemption.
- The duties test requires that the employee’s job duties conform to executive, administrative or professional duties, as defined by law. This analysis requires a more thorough evaluation of whether an employee can be classified in one of the categories mentioned above (administrative, professional, outside sales, computer and highly compensated employee)
The final rule increases the minimum salary level of $455 per week ($23,660 per year) to $913 per week or $47,476 per year. The new salary level represents the 40th percentile of wages earned by workers in the lowest-wage census region in the United States (currently the South) for a full-year worker.
These higher salary levels will be updated every three years to maintain the salary level at their corresponding 40th or 90th percentiles. The first automatic rate update is expected by January. 1, 2020. The DOL will publish updated rates in the Federal Register and on the Wage and Hour Division’s website at least 150 days before their effective date.
Highly Compensated Employees
The final rule also increases the $100,000 salary level for highly compensated individuals to $134,004 per year—the 90th percentile of wages earned by full-time workers across the entire United States. However these individuals must receive at least the full standard salary amount each pay period (i.e., $913 per week, $1,826 bi-weekly or $3,956.33 per month) on a salary or fee basis (not counting non-discretionary bonuses and incentive payments). The remainder of a highly compensated employee’s wages may be calculated by including the full amount of non-discretionary bonuses and incentive payments (including commissions).
Impact on Employers
Employers will need to increase employee salaries, or re-classify certain employees as either exempt or non-exempt, solely based on their salary level. The DOL estimates that this final rule extends overtime protections to approximately 4.2 million workers who are currently exempt under the white collar rules and clarifies overtime compensation eligibility for another 5.7 million white collar workers and 3.2 million salaried blue collar workers whose entitlement to overtime pay will no longer rely on the application of the duties test.
Employers that fail to comply with these final rules may be subject to a variety of overtime wage payment enforcement mechanisms including lawsuits, civil fines, and criminal charges for willful violations.
More information is available here.