On May 18, 2016, the Wage and Hour Division of the United States Department of Labor released the final regulations for the revision of the Fair Labor Standards Act. These changes were published in the Federal Register and will be effective on December 1, 2016.
These final regulations revised the minimum salary that must be paid to currently exempt employees in order for them to meet the first step for being considered “exempt” from overtime pay. To understand what was changed in context, let me refresh your memory on the previous standards.
Presently, the salary level for an employee to be considered exempt from overtime pay is $455 per week or $23,660 per year. Obviously, this value is very low; in fact, it is below the poverty level for a family of four. In my opinion, the figure was low even for 2004 when the FLSA was last changed. Being paid at or below this salary basis fulfills the first criteria for being an exempt employee and is not a high standard to meet.
Besides this salary point, other qualifications for being considered an exempt employee include meeting the duties tests as defined by the category of exemption. Exemption categories include executive, which generally includes managers and supervisors; administrative, which includes white-collar positions that exercise discretion and independent judgment; professional, which includes learned individuals like doctors, engineers, architects, teachers, and creative professionals and others with imagination, originality, or talent; computer professional; highly compensated, which includes employees who earn over $100,000 and perform some aspect of an exempt duty; and outside sales representative, which has to meet no salary requirement.
Rather than fixing a single salary level, this revision of the Fair Labor Standards Act establishes a new salary requirement at 40% of the weekly earnings of all salaried employees in the United States (as judged by the lowest census area, which was the South). As a result, any currently exempt employee who is earning less than $913 per week or $47,476 annually for a full year will automatically lose his or her exemption status, thereby becoming overtime eligible as of the effective date.
Companies are allowed to include discretionary bonuses to cover up to 10% of the new salary level, as long as these are paid on a quarterly basis.
If you are part of a company with a highly compensated employee under the current definition, his or her $100,000 compensation will now be indexed to 90% of the weekly earnings of all salaried employees, pushing him or her to the $134,000+ level.
There is no proposed change to the duties test, despite earlier expectation. Additionally, these changes only affect the employees covered by the executive, administrative, and professional exemptions.
Stay tuned for a more in-depth look at the new proposed FLSA regulations in the second part of this series. In my next article, we will cover what employers should do to meet these new requirements. Follow us on social media to be notified when the next part is published!