31 May 2016

DOL Releases Final White Collar Overtime Rules

On May 17, 2016, the U.S. Department of Labor (DOL) published its much-awaited final regulations changing the overtime exemption for “white-collar” workers under the Fair Labor Standards Act (FLSA). The new rules increased the minimum required salary for exempt administrative, executive, and professional employees from $455 per week (or $23,660 per year) to $913 per week (or $47,476 per year). Additionally, the new rules increased the minimum required salary for exempt highly compensated employees from $100,000 to $134,004. As a result, an estimated 4.2 million previously exempt white-collar employees may soon be eligible for overtime pay.

The DOL included a mechanism that will automatically increase these minimum salary amounts on a periodic basis. The minimum salary for exempt administrative, executive, and professional employees 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. The minimum salary for highly compensated employees will also be recalculated every three years, to equal the 90th percentile of full-time salaried workers. Thus, if overall earnings rise throughout the country, employers can expect the minimum required salary for their exempt white-collar employees to rise as well.

Notably, the new rules permit 10 percent of exempt employees’ minimum $913 weekly salary to come from non-discretionary bonuses, incentive payments and commissions, paid at least quarterly. Employers are permitted to make catch-up payments at the end of each quarter if the employee did not earn enough to meet the minimum salary requirements for a white-collar exemption. This is a significant departure from the previous rules, which did not allow employers to attribute any of the minimum salary to bonuses.

In addition to receiving the required minimum salary, employees must perform specific job duties in order to qualify for the exemptions. Paying the required minimum salary alone is not enough to make your employee exempt under the FLSA. Although the new rules did not change the job duties tests for exempt white-collar employees, the new rules provide employers with an excellent opportunity to review the job duties of their exempt white-collar workers and make any necessary changes.

The new rules go into effect on December 1, 2016. This gives employers approximately six months to come into compliance. This is certainly an improvement from the 60 day window initially contemplated by the DOL. Employers should begin analyzing this issue now so they can be prepared to make all necessary payroll and employment policy changes by the December 1, 2016 deadline. Employers should review their exempt white-collar employees’ current salaries and identify the employees whose salaries will not meet the minimum requirements as of December 1, 2016 (i.e., current exempt employees who are paid less than $913 per week). Employers must then decide whether to increase the salaries of these employees or to reclassify them as non-exempt. When making this decision, employers should keep in mind that the required minimum salary of $913 per week will likely increase when it is recalculated in three years.

Employers will want to evaluate whether or not they are prepared to properly track the work hours of formerly exempt white-collar workers and be prepared to calculate overtime rates of pay for these employees if they are changed to non-exempt. Employers may want to provide training for newly non-exempt employees regarding timekeeping and overtime policies. Finally, employers should keep in mind that these regulations may have a major impact on many employees – not only on their pay, but on morale and workplace culture as well. Employers should therefore develop an effective communication plan, which includes training for managers, to minimize any negative effects on workplace morale and culture.

To help employers manage the changes that are required by the new rules, we will be conducting workshops over the next few months. Please visit our website to register for a workshop. If you have any questions about the new rules or about wage and hour law in general, please contact your Miller Johnson attorney or the authors of this article.