June 15, 2016 Final Regulations Modifying the Fair Labor Standards Act’s Overtime Rules
KEEPING YOU INFORMED…
The Fair Labor Standards Act (“FLSA”) requires that, among other things, non-exempt employees be paid overtime at a rate of one and one-half times their regular rate of pay for hours worked above 40 per week. So-called “white collar” and “highly compensated” employees are exempt from this rule.
The U.S. Department of Labor (“the DOL”) recently issued its final amended regulations governing employers’ overtime obligations. The amended regulations, which become effective on December 1, 2016, increase the minimum salary and total compensation that an employee must earn in order to meet the “white collar” and “highly compensated” exemption rules. These changes expand the number of “white collar” and “highly compensated” employees who will be eligible to receive overtime compensation. This memorandum provides an overview of the new rules.
White Collar Exemption
To satisfy the “white collar” exemption, an employee must meet the following three criteria: (1) he/she is paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (“the salary basis test”); (2) his/her salary meets a minimum specified amount (“the salary level test”); and (3) his/her job duties primarily involve executive, administrative or professional duties as defined by the regulations (“the duties test”). With regard to the “salary level test,” the amended regulations increase the required minimum salary level from at least $455 per week or $23,660 per year to $913 per week or $47,476 per year.
The amendments permit employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the salary level test. To be credited, however, employers must make these nondiscretionary bonus and incentive payments on a quarterly or more frequent basis and are permitted to make one “catch-up” payment at the end of each quarter; i.e., a payment to eliminate the risk of non-compliance in the event that an employee’s bonuses or incentive payments drop to a level where the employee would otherwise fail to satisfy the salary level requirement in a given quarter.
Highly Compensated Employee Exemption
To be exempt as a highly compensated employee, an employee must satisfy the following three criteria: (1) his/her total compensation meets a minimum specified amount; (2) his/her primary duty includes performing office or non-manual work; and (3) he/she customarily and regularly performs at least one of the exempt duties or responsibilities of an exempt executive, administrative or professional employee. The amendments change the first criterion by increasing the “total annual compensation” requirement from a minimum of $100,000, with at least $455 per week paid on a salary basis, to $134,004, with at least $913 per week paid on a salary basis.
Automatic Salary Level Updates
The amended regulations establish a mechanism to automatically update the minimum “salary level test” for white collar employees and the “total annual compensation” requirement for highly compensated employees. The “salary level test” is now set at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region (currently, the South), which is presently at least $913 per week or $47,476 per year. The “total annual compensation” test is now set at the annual equivalent of the 90th percentile of full-time salaried workers nationally, which is presently $134,004 per year. The amended regulations require the DOL to update the “salary level test” and the “total annual compensation” minimums every three years by maintaining both rates at their respective percentiles, with these updates becoming effective on January 1 of the following year. The first update will be effective January 1, 2020. The DOL is also required to publish the updated rates in the Federal Register at least 150 days before their effective date, and to post the updated salary and compensation levels on the Wage and Hour Division’s website.
If you have any questions about these amended regulations or how they will impact your workforce, please contact Alyssa L. Zuckerman at firstname.lastname@example.org, (631) 694-2300, or one of our other attorneys.
THIS MEMORANDUM IS MEANT TO ASSIST IN GENERAL UNDERSTANDING OF THE CURRENT LAW. IT IS NOT TO BE REGARDED AS LEGAL ADVICE. THOSE WITH PARTICULAR QUESTIONS SHOULD SEEK THE ADVICE OF COUNSEL.
© Lamb & Barnosky, LLP 2016