The Department of Labor’s Wage and Hour Division (the “DOL”) issued its final rule Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees on May 17, 2016 (the “rule” or “final rule”). The rule significantly impacts who now qualifies as exempt employees under the Fair Labor Standards Act (“FLSA”) by changing the threshold salary requirements for the white collar exemption under the FLSA. The DOL has not updated these salary requirements since 2004, allowing employees who made $455 per week (approximately $23,660) to qualify for the while collar exemption under the FLSA. In the final rule, this salary requirement is now doubled—entitling many employees who make less than $913/week (or $47,475) per year to be paid overtime wages. The rule also establishes new threshold requirements for employees who qualify under the highly compensated employee exemption.

It is estimated that approximately 4.2 million formerly exempt employees under the white collar exemptions will now be entitled to overtime pay under the FLSA.

Key Points of the Final Rule

  • The new requirements issued in the final rule take effect December 1, 2017.
  • Employees    who    make    less    than    $913/week ($47,476/year) will no longer qualify under the white collar exemption and may be entitled to overtime under the FLSA.
  • The rule also sets a new salary threshold for the highly compensated employees of $134,004/year.
  • Every three years, the above salary threshold levels will automatically increase.
  • Commission, bonus and other incentive payments may count for up to 10% of an employee’s salary level, for employees who qualify under the white collar exemption.

Many employers have already begun reviewing their employee compensation structures to determine which employees will become entitled to overtime wages under the rule. Employers must now decide whether it will be more cost-effective to either increase wages in order to satisfy the new threshold salary requirements or alternatively institute overtime payments which comply with the FLSA. In addition, employees impacted by these changes may begin raising questions in the work place either about their inability to qualify as an exempt employee or alternatively their right to obtain overtime wages beginning in 2017.