May 18, 2016
Today, the highly anticipated new Final Rule on the Fair Labor Standards Act was published by the U.S. Labor Secretary. The Rule takes effect on December 1, 2016 and sets the minimum salary threshold for exempt employees at $47,476 ($913 weekly), up from the current $23,660 annually under FLSA – or up from $35,100 ($675 weekly) in New York State. The final rule does not make any changes to the “duties test” that determines whether white collar salaried workers earning more than the salary threshold are ineligible for overtime pay.
Exempt salaried employees who fall below the minimum threshold salary will have to be reclassified as non-exempt (paid hourly and clocking in/out), or will have to have their salary reset to meet the minimum standard. Additionally, employers will need to consider the “compression effect” on other positions when reclassifying employees. Employers should analyze the direct and indirect impact this final rule will have on its workforce far in advance of the effective date.
In addition to raising the salary threshold, the final regulations also address:
Bonuses, incentive payments, and commissions. The final rule will allow up to 10% of the salary threshold for non-highly compensated employee (HCE) to be met by non-discretionary bonuses, incentive pay, or commissions, provided these payments are made on at least a quarterly basis.
Automatic updates. The final rule will update the salary threshold every three years, beginning January 1, 2020. Each update will raise the standard threshold to the 40th percentile of full-time salaried workers in the lowest-wage Census region, which is estimated to be $51,168 in 2020. The HCE threshold will increase to the 90th percentile of full-time salaried workers nationally, estimated to be $147,524 in 2020.
Standard salary level. The final rule will raise the standard salary threshold to equal the 40th percentile of weekly earnings for full-time salaried workers in the lowest-wage Census region currently the South. This will raise it from $455 a week to $913 a week ($47,476 for a full-year worker). This means that 35 percent of full-time salaried workers will be automatically entitled to overtime, based solely on their salary.
Highly Compensated Employees (HCE) salary level. The rule also updates the total annual compensation level above which most white collar workers will be ineligible for overtime. The final rule raises this level to the 90th percentile of full-time salaried workers nationally, or from the current $100,000 to $134,004 a year.
We are here to help. Please feel free to contact us if you need assistance understanding, preparing and/or complying with this new federal wage and hour law.
Larry Kagan, MBA