The U.S. Department of Labor issued the final version of the overtime exemption rule under the Fair Labor Standards Act (“FLSA”). The Final Rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt (aka, the “white collar” exemptions). Below is a summary of the changes implemented by the Final Rule:
- The standard salary level is now set at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South ($913 per week; $47,476 annually);
- The total annual compensation requirement for highly compensated employees is set at the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004); and
- A mechanism for automatically updating the salary and compensation levels every three years has been established to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.
- The salary basis test has been amended to allow employers to use nondiscretionary 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.
In order to remain compliant with the regulations and avoid potential litigation, employers must identify those employees whose status is affected by the salary threshold revisions. Now is the time to conduct an internal wage and hour audit to assess your employees’ FLSA classifications. This assessment should become an annual practice.