U.S. Department of Labor Issues Final Rule on FLSA Overtime Regulations

By: Christian P. Jones

On May 18, 2016, the U.S. Department of Labor published its long-awaited final rule amending the federal Fair Labor Standards Act (“FLSA”) overtime regulations regarding the executive, administrative and professional exemptions (the “FLSA White Collar Exemptions”).  The outside sales and computer professional exemptions are not subject to the new amendments. The amendments, which go into effect on December 1, 2016, provide in relevant part as follows:

  • Establishes the minimum salary level for FLSA White Collar Exemptions at $913 per week ($47,476 per year). This is a significant increase from the current $455 per week ($23,660 per year) under the FLSA and $675 per week ($35,100 per year) for the executive and administrative exemptions under the New York State wage and hour regulations;
  • Sets the total compensation level for highly compensated employees (HCE) at $134,004 per year. This is an increase from the current $100,000 per year minimum;
  • Provides a mechanism for automatic increases in the salary levels every three years (beginning January 1, 2020) – with the minimum salary level indexed to the 40th percentile of salaries for full-time workers in the lowest wage census region, and the HCE level indexed to the 90th percentile of salaries for national full-time salaried workers; and
  • Allows for employers to count nondiscretionary bonuses and other incentive payments (including commissions) paid on at least a quarterly basis, for up to 10% of the minimum salary level.

It is important to note that the amendments do not make any changes to the “duties test” for the FLSA White Collar Exemptions.

With the effective date just months away, employers need to assess which of their employees will be affected and what steps will be taken to satisfy these significant changes. In this regard, the DOL has issued fact sheets and guidance documents identifying alternative steps employers can take in order to comply with the new rule:

  1. increasing employee salaries to the new salary level and continuing to treat employees as exempt (assuming they satisfy the duties requirements);
  2. reclassifying employees as non-exempt and paying overtime for hours worked over 40; or
  3. reducing employee hours to avoid overtime work.

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