18 May 2016

Department of Labor Announces Final White Collar Overtime Exemption Regulations

Today, the Department of Labor announced the much-awaited regulations changing the overtime exemption for millions of “white-collar” workers under the Fair Labor Standards Act. The new rules take effect December 1, 2016. Here are the key points:

  • Minimum Salary: The minimum salary for exempt administrative, executive, and professional employees increases from $455 per week (or $23,660 per year) to $913 per week (or $47,476 per year). This minimum salary will be recalculated every three years to ensure that it remains equal to the 40th percentile of earnings for full-time salaried workers in the lowest-range Census region (currently, the South).
  • Bonuses: In a departure from current regulations, the new rule says 10% of the minimum $913 weekly salary may come from non-discretionary bonuses, incentive payments, and commissions, paid at least quarterly. Employers may make “catch-up” payments at the end of each quarter if the employee did not earn enough in non-discretionary bonuses and incentive payments to meet the new minimum salary amount. For Highly Compensated Employees, there is no change from the current regulation with respect to non-discretionary bonuses, incentive payments, and commissions: so long as the employee earns at least $913 per week in guaranteed salary, the remaining portion of the $134,004 may include commissions, non-discretionary bonuses, and other non-discretionary compensation.
  • Highly Compensated Employees: The minimum salary level for highly compensated employees will rise from $100,000 to $134,004. This minimum salary will also be recalculated every three years, to equal the 90th percentile of full-time salaried workers. These employees may also meet certain duties tests in order to be exempt.
  • Duties Tests: The final rule does not change the duties tests for these exemptions.

With only 6 months to comply, employers should take the following steps:

  • Review Current Workforce Wage Rates. Employers should identify each employee who is presently exempt from overtime, but whose salary is close to or below $913 per week.
  • Determine Whether to Increase Salary to Preserve Exempt Status. For any exempt employee whose weekly salary is below the new minimum of $913, the employer must decide whether to (1) increase the employee’s salary to maintain the employee’s exempt status, or (2) reclassify the employee as non-exempt. Keep in mind that the minimum exempt salary will be recalculated every three years.
  • Determine Methods of Payment and Recording of Hours for Newly Non-exempt Employees. If the employer decides that a presently-exempt employee will become non-exempt, the employer will also have to decide (1) the non-exempt method by which the employee will be paid (hourly, weekly, or other), and (2) how the employer will track and record the hours the employee works, including overtime hours and paid time off.
  • Update or Create Good Policies. Employers should also review current policies regarding timekeeping, “off-the-clock” work, and overtime.
  • Develop a Communication Plan. The new rule will have a major impact on many employees – not only on their pay, but on employee morale and workplace culture as well. An effective communication plan will be important in successfully implementing the changes required by the new overtime rule.

We understand that complying with the new regulations will be no easy task. To assist employers in preparing for the changes, Miller Johnson will be hosting workshops in the near future to help with the nuts-and-bolts of implementing the new rules, including communicating the changes to employees, options for keeping track of work hours, paying non-exempt employees a salary, and more practical advice. We will notify you soon regarding the dates, times, and locations of our workshops.

In the meantime, if you have any questions about how to prepare for the new rules, or wage and hour law in general, please contact the authors or a member of the Wage and Hour practice.