Forced Raises: DOL Unveils New Overtime Rule

Posted May 18, 2016 at 10:45 am

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The Department of Labor (DOL) on May 18 announced revisions to the Fair Labor Standards Act’s (FLSA) white-collar exemption. Click here for the full text of the new rule, or here for more information on the changes from the DOLAlthough there will be additional nuances identified once the entire package is evaluated, below are the bottom-line changes:

The new salary level required for the executive, administrative and professional exemptions will be $913 per week, which translates to $47,476 per year.

Employers can meet up to 10% of the salary level with bonuses and commissions. However, for employers to credit nondiscretionary bonuses and incentive payments toward a portion of the standard salary-level test, such payments must be made on a quarterly or more frequent basis. The employer is “permitted” to make a “catch-up” payment. Specifics of this new development are still unclear.

The new salary level required to take advantage of the highly-compensated employee provision of the exemptions will be $134,004 per year. Of that, $913 per week must be paid on a salary basis.

The new levels will take effect on Dec. 1. That date falls on a Thursday, which means that salary increases to ensure continued use of the exemption for weekly/biweekly employees must be made for the workweek (or pay period) that includes Dec. 1.

The salary level will be increased automatically every three years, starting in 2020. The amount will be based on the 40th percentile of full-time salaried workers in the region in which the salary level is lowest (historically, the South). The DOL will publish the information in the Federal Register in advance of the increase. It’s expected that the salary will be $51,000 per year on Jan. 1, 2020.

The salary level represents a slight reduction from the expected level of $50,440 per year, which was identified by the DOL in its proposed rule last year. In addition, although an automatic increase was proposed and expected, it will do so every three years – instead of annually. That will provide employers with a small degree of relief in the compensation-planning process.

Over the past year, there has been a great deal of discussion about what the “Final Rule” might contain. Given those discussions, it’s notable that the final rule does not:

  • Change the regulatory text for primary duty;
  • Revise the tests for the duties required of executive, administrative or professional employees;
  • Amend the salary basis test;
  • Apply any new compensation standards to doctors, lawyers, teachers, or outside sales employees; or
  • Make any changes to the computer professional exemption (other than the salary increase, as may be applicable).

More to come as the entire rule is evaluated. For starters, TRSA has scheduled a webinar for 2 p.m. EST, June 1, on the new FLSA rules with Alexander Passantino, a former director of the DOL’s Wage and Hour Division. Click here for details and to register for the webinar.