The U.S. Department of Labor (DOL) published the final rule revising the “white collar” overtime exemption regulations on May 18, 2016. This publication was the result of a process that began in March 2014 when President Obama directed the Secretary of Labor to review and “modernize” the current overtime regulations. In the final rule, the DOL estimates that the changes will impact 4.2 million white collar workers.
The most significant change made by the final rule is raising the minimum salary level for the white collar—executive, administrative and professional—exemptions under the Fair Labor Standards Act (FLSA). The final rule raises the minimum salary level from $455 per week, or $23,660 per year to $913 per week, or $47,476 per year. An individual earning below that threshold will not fall under the white collar exemptions from overtime pay. The final rule permits additional compensation – such as bonuses and commissions – to satisfy up to 10% of the minimum salary level. The final rule also raises the salary requirements for highly compensated employees from $100,000 per year to $134,004 per year. For the first time, the DOL has included a mechanism to automatically increase both of these salary levels. The new regulations go into effect on December 1, 2016.
The DOL has updated the rules for Salary and Compensation Levels for FLSA. This rule updates the regulations for executive, administrative and professional employees entitlement under the Fair Labor Standards Act. Here is a table from the DOL website that outlines the new regulations in compensation:
The final rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt.
Additionally, the Final Rule amends the salary basis test to allow employers to use non discretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.
The effective date of the final rule is December 1, 2016. The initial increases to the standard salary level (from $455 to $913 per week) and HCE total annual compensation requirement (from $100,000 to $134,004 per year) will be effective on that date. Future automatic updates to those thresholds will occur every three years, beginning on January 1, 2020.
Federal law may differ from State law, in that case an employer must comply with the standard that protects the employee most. This rule may impact your business and your payroll procedures significantly. At GMG we are here to help. If you have questions or would like to review your payroll to understand the impact of these new rules call GMG today.