On May 18, the U.S. Department of Labor’s Wage and Hour Division (WHD) released its final rule implementing changes to the Fair Labor Standards Act (FLSA) overtime regulations. The rule will be officially published in the Federal Register on May 23. The most significant change is a doubling of the standard salary threshold for exempt employees – from $455 per week ($23,660 per year) to $913 per week ($47,476 per year). The rule takes effect on December 1, 2016.
Other key aspects of the rule include:
- Employers will be able to use nondiscretionary bonuses and incentive payments, including commissions, to satisfy up to 10 percent of the standard salary level, provided payments are made on at least a quarterly basis.
- The salary threshold for highly-compensated individuals will increase from $100,000 to $134,004. Bonus and incentive payments still may not count toward this threshold.
- The salary thresholds (for both the standard and highly-compensated employee exemptions) will automatically increase every three years.
- No changes were made to the highly-debated duties test.
In 2015, AGC sent individual comments to WHD on its proposed rule and signed onto joint comments submitted by the Partnership to Protect Workplace Opportunity (PPWO) coalition. These comments raised strong concerns that the proposed salary threshold of $970 per week ($50,440 per year) would be too large an increase for employers to absorb all at once. AGC recommended, among other things, that WHD set a threshold of no more than $37,500 and phase in the increase over time. While WHD did not accept all of AGC’s and the PPWO’s recommendations, the final rule does establish a lower salary threshold than originally proposed. WHD’s concession for bonuses and commissions and its abstinence from changing the duties test are also consistent with AGC’s recommendations.
AGC will continue to monitor any developments in Congress or the courts that stop or limit the rule, and will notify members accordingly. Meanwhile, members are well-advised to begin carefully reviewing compensation practices to determine whether any employees now classified as exempt are paid a salary of at least $455 per week but less than $913 per week, as such employees will no longer qualify for exemption. Under the new rule, employers must either (1) begin keeping track of such employees’ work hours and pay them overtime in accordance with FLSA mandates, or (2) increase their pay to meet the new salary threshold. AGC recommends seeking the assistance of an employment lawyer licensed to practice in your state with any concerns or complications.