On May 18, 2016, the United States Department of Labor (“DOL”) announced the publication of the Final Rule updating the overtime regulations for what are commonly referred to as the “White Collar” exemptions of the Fair Labor Standards Act (“FLSA”). The Final Rule which will be published on May 23, 2016 is scheduled to go into effect on December 1, 2016.
The DOL previously published a Notice of Proposed Rulemaking (“NPRM”) proposing certain changes to the overtime regulations for the “White Collar” exemptions, and subsequently allowed for a comment period on the proposed changes in the NPRM. The DOL received more than 270,000 comments which assisted the DOL in issuing the Final Rule. While similar to the proposals in the NPRM, the Final Rule is not identical to the proposals in the NPRM.
The key changes being made to the current FLSA regulations by the Final Rule are as follows:
- The salary level requirement will increase from $455 weekly ($23,660 annually) to $913 weekly ($47,476 annually). This new figure is the 40th percentile for full-time salaried workers in the lowest-wage Census region (currently the South).
- The total annual compensation requirement necessary to satisfy the Highly Compensated Employee exemption will increase from $100,000 annually to $134,004 annually. This new figure is the annual equivalent of the 90th percentile of full-time salaried workers nationally.
- The Final Rule establishes a mechanism for automatically updating the salary and compensation levels every three years, beginning on January 1, 2020. The new automatic mechanism will maintain the levels of the above percentiles: for the salary level requirement – the 40th percentile for full-time salaried workers in the lowest wage Census region; and for the total annual compensation requirement – the 90th percentile of full-time salaried workers nationally.
- Up to 10 percent of the new standard salary level requirement can come from nondiscretionary bonuses and incentive payments (including commissions), if the bonuses or incentive payments are made on a quarterly or more frequent basis. Previously, bonuses and incentive payments could not be considered for purposes of the salary level requirement.
The Final Rule will have a significant impact on employers, as it is estimated that more than 4 million workers who were previously not entitled to overtime pay, will now be entitled to overtime pay within the first year of the Final Rule’s becoming effective. While the Final Rule did not change the duties required to satisfy the “White Collar” exemptions, now is a good time for all employers to review the duties of their exempt employees to ensure they are in compliance with the requirements of the FLSA. Employers should take steps to bring their workforce into compliance with the new regulations set forth in the Final Rule before they go into effect on December 1, 2016.
Information on the Final Rule, as well as the FLSA and the requirements of its various exemptions (including the “White Collar” exemptions) can be found on the DOL – Wage and Hour Division website.