On May 18, 2016, after receiving over 250,000 comments, the U.S. Department of Labor ("DOL") released its Final Rule which updates and increases the minimum salary required in order for an executive, administrative or professional employee to qualify for an exemption from the overtime pay requirements under the Fair Labor Standards Act ("FLSA"). Effective December 1, 2016, an exempt employee must be paid at least $47,476 per year in order to be considered an exempt employee. If the employee is not paid $47,476 per year, their salary must either be increased to meet this amount, or the employee must be paid overtime for all hours worked after 40 hours in a given workweek. All employers are affected.
Generally, in order to be considered exempt from the overtime rules, employees must meet all three requirements:
- The employee must be paid a fixed salary regardless of the quality or quantity of work performed ("salary basis test");
- The amount of salary paid to the employee must meet a currently specified amount ("salary level test"); and
- The employee's job duties must primarily involve executive, administrative, or professional duties ("duties test").
Under the Final Rule, the DOL is significantly changing the Salary Level Test.
Key provisions of the Final Rule effective December 1, 2016 are as follows:
- The salary needed to be considered an exempt employee will increase from $23,660 to $47,476 per year;
- The salary needed to be considered a highly compensated employee will increasefrom $100,000 to $134,004 per year;
- The Rule automatically updates these salary levels every three years beginning January 1, 2020;
- Employers will be able to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary level.