DOL Issues New Final Rule on FLSA Exemptions Vastly Increasing the Number of Employees Eligible for Overtime Pay

DOL Issues New Final Rule on FLSA Exemptions Vastly Increasing the Number of Employees Eligible for Overtime Pay

Yesterday, the U.S. Department of Labor Wage and Hour Division announced its Final Rule updating the salary requirements for exemptions from overtime pay requirements under the Fair Labor Standards Act (FLSA).

The Final Rule more than doubles the salary threshold needed to satisfy the most common exemptions, raising it from $23,660 to $47,476 annually ($455 to $913 weekly), and increases the total annual compensation threshold for the “highly-compensated employee” exemption from $100,000 to $134,004.  (Note that employees still must perform job duties that meet the substantive requirements of these exemptions.)

There will be additional, automatic increases in the compensation levels every three years, with the next increase occurring on January 1, 2020.  The Final Rule also amends the salary basis test to allow employers to use non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.

The Final Rule goes into effect December 1, 2016.

The new requirements do not have to result in drastically higher expenses or exposure.  What can employers do to minimize the impact?  NOW is the time to get your house in order.  Start by considering the many legal and business implications of the new Final Rule:

1. Identify both sets of employees affected by this change.  But also understand that the new Final Rule does not apply to all exemptions.
2. How will you evaluate you evaluate the financial impact of the new Final Rule on your business?  What are the unique challenges to this analysis?
3. There are at least six options available to you for each impacted employee to minimize the financial impact of the new Final Rule.  Are you considering all of the options?  How do you know which option is best for you?
4. Also consider the impact on your company’s administrative functions.  Are you thinking about your timekeeping and attendance systems?  The way you train your managers and employees?  The policies in your handbook?  Your benefits packages?
5. The new regulations will bring new scrutiny to your employee classifications across the board, not just to the specific employees impacted by the new regulations.  Are you ready for that?  If there is a silver lining to the new Final Rule, it’s the hidden opportunity to review your entire employee classification system and make appropriate changes without drawing undue attention.

Again, the new salary requirements do not have to mean drastically higher expenses for your business.  And, perhaps this presents an opportunity for an overdue examination of your exempt classifications.  Please do not hesitate to contact us for guidance to remain in compliance and keep costs in check.