On May 18, 2016, the Department of Labor (DOL) finalized revisions to the overtime and exemption regulations of the Fair Labor Standards Act (FLSA), increasing the minimum salary threshold by over 100%.

What You Need to Know if You Have Salaried Employees 

  • The minimum salary allowed for an employee to be exempt changed from $23,660 to $47,476 annually
  • 10% of the new salary threshold can be met through bonus and incentive compensation if incentives are paid at least quarterly
  • Changes to the regulations are effective December 1, 2016
  • The threshold for highly compensated individuals (HCEs) changed from $100,000 to $134,004 annually
  • Ongoing, the thresholds will be adjusted every three years, beginning in 2020 

Note that the final rule did not change the primary duties tests applicable to the three white collar exemptions or the less common exemptions such as those related to outside sales employees, licensed legal or medical professionals,  and retail employees paid on commission.

How Are the Threshold Adjustments Determined?

The automatic threshold adjustment that will occur every three years, beginning in 2020, will be based on the earnings of full-time salaried workers in the United States.  The overtime threshold minimum will be equal to the 40th percentile of the weekly earnings of full-time salaried workers in the lowest-wage U.S. Census region.  The HCE threshold will be equal to the 90th percentile of annual earnings of all full-time salaried workers nationally. &

Three Things Employers Can Do to Prepare for the Raised Minimum

  • Review your workforce to determine if you have exempt employees with salaries under $47,476 that will lose their exemption on December 1, 2016
  • Quantify the number of hours worked by the affected employees to determine the impact
  • Review the DOL's general guidance documents for private employers and/or nonprofits

How to Comply with the New Regulations?

If you have exempt employees who will lose their exemption on December 1, 2016, what are your options?  Here are a few of the suggestions, although there may be more creative solutions depending on your operations and structure. 

  • Raise employees' salaries to meet the minimum threshold
  • Pay employees' overtime rates for anything over 40 hours per week
  • Redistributing work, adjust schedules, and/or spread work hours among your team to limit the number of overtime hours needed
  • Adjust wages downward to compensate for anticipated overtime

We hope you find this information valuable.  As always, we are here to help.  If you have any questions or would like a more in-depth explanation of these changes, please give me a call to discuss.    

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