Labor Department Issues Final Amendments to Overtime Exemptions

On May 18, the U.S. Department of Labor issued publicly its long-awaited final regulations updating the "White Collar" exemptions to the minimum wage and overtime requirements of the Fair Labor Standards Act. Generally, to qualify for an exemption, an employee must overcome two hurdles: (1) receive at least a minimum threshold salary (the salary test); and (2) pass the "duties test" to ensure that they have the type of job Congress meant to exclude from overtime protections. Key provisions of the Final Rule are:

• An increase to the minimum salary threshold from $455 per week (or approximately $23,660 per year) to $913 per week (or approximately $47,476 per year), which is meant to equal the 40th percentile of weekly earnings for full-time salaried workers working in the lowest-wage Census region;
• An increase to the total annual compensation level for Highly Compensated Employees (who must meet a minimal duties test) from $100,000 per year to $134,000 per year;
• A mechanism to automatically update the salary and compensation levels every three years (beginning January 1, 2020) to maintain those levels at a certain percentile of full-time salaried workers nationwide;
• Employers are allowed to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level;
• There are no changes at this time to the "duties test"; and
• The Final Rule goes into effect December 1, 2016.

Employers will need to assess where each of their currently exempt employees fall in relation to these new rules and make certain choices for employees who make less than the upgraded minimum salary requirements when they work more than 40 hours in a week. Employers can increase employees' salaries to meet the new threshold; reclassify exempt employees to nonexempt status and pay workers the overtime premium for all extra hours; or limit nonexempt employees to work only 40 hours in a week and hire part-time workers to handle any extra work. Regardless of the means by which an employer chooses to address these changes, the new rules give employers the opportunity to ensure that all of their employees are properly classified, fix classifications that previously may have been incorrect (including those employees who may not have actually met the "duties test") and make sure that they have adequate systems in place for tracking employee hours.