Late yesterday the White House and Department of Labor released key details of the new FLSA overtime exemption rules for white collar workers. The final rules themselves have just been released this morning. We are still digesting 500-plus page final rules, but the key points are as follows:
Effective Date: December 1, 2016. Note that this is a Thursday, so employers will need to make changes for the payroll period in which December 1 falls.
Minimum Salary: $913 per week, or $47,476 annually. This is slightly less than the $970 per week ($50,440 annually) originally proposed, but still more than double the current $455 per week.
Bonuses and Commissions May Now Be Included: In a somewhat surprising concession to employers, the new rules will allow non-discretionary bonuses, incentive payments and commissions to count for up to 10% of the minimum salary, provided these amounts are paid at least quarterly.
Highly Compensated Employees: The minimum salary for employees exempt under the “highly compensated” employee exemption will increase to $134,004 from $100,000.
Automatic Updates: The new minimum salary levels will not update automatically every year as originally proposed, but they will be adjusted every three years beginning January 1, 2020. The salary level will be pegged to the 40th percentile of full-time salaried workers in the lowest-wage Census region. For 2020, the DOL estimates that the minimum will go up to $51,168. The minimum for highly compensated employees will be tied to the 90th percentile of full-time salaried workers in the lowest-wage Census region, which the DOL estimates will be $147,524 in 2020.
Duties Tests: The new rule contains no changes to the existing duties tests.
For our Higher Ed and Non-profit clients and readers, this may not be what you were hoping for in a final rule. Despite rumors that the rules might contain some carve-outs for higher education institutions and non-profits, this does not appear to be the case. The DOL has published guides for higher education, non-profit and government (all .pdf) employers to help explain how these employers might meet their obligations, but there is no indication of any new exceptions in the rules for these groups.
What is the potential impact of this rule? The DOL estimates that the new rule will result in approximately 35% of all full-time, salaried workers being eligible for overtime based on their salary level alone. It further states that the new rule will affect 4.2 million salaried workers. Of these, the DOL projects that 4.1 million will be re-classified as non-exempt and eligible for overtime, while approximately 100,000 will receive a raise so their salary meets the new threshold. The DOL contends that the rule will result in workers receiving an aggregate pay increase of $1.2 billion per year. Of course, many employer groups dispute that number, pointing out that employers are as likely to cut hours, reduce headcount, or make other changes to avoid increased labor costs.