The U.S. Department of Labor (the “DOL”) has issued a “Final Rule”, which revises its overtime pay regulations. The DOL has also issued FAQs which discusses the Final Rule. Highlights of the FAQs include the following:
The Final Rule. The Final Rule updates the regulations for determining whether white collar salaried employees are exempt from the Fair Labor Standards Act’s minimum wage and overtime pay protections. They are exempt if they are employed in a bona fide executive, administrative or professional capacity, as those terms are defined in the Department of Labor’s regulations at 29 part 541.
Qualifying For The Exemptions. To qualify for exemption, a white collar employee generally must:
- be salaried, meaning that they are paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the “salary basis test”);
- be paid more than a specified weekly salary level, which is $913 per week (the equivalent of $47,476 annually for a full-year worker) under this Final Rule (the “salary level test”); and
- primarily perform executive, administrative, or professional duties, as defined in the Department’s regulations (the “duties test”).
Before the Final Rule, the standard salary level was set at $455 per week ($23,660 annually for a full-year worker). Certain employees are not subject to either the salary basis or salary level tests (for example, doctors, teachers, and lawyers). The DOL’s regulations also provide an exemption for certain highly compensated employees (“HCE”) who earn above a higher total annual compensation level ($134,004 under this Final Rule, and $100,000 previously) and satisfy a minimal duties test.
The Primary Changes In The Final Rule. The primary changes are-
— The standard salary level is, as indicated above, increased from $455 per week ($23,660 for a full-year worker) to $913 per week ($47,476 for a full-year worker).
— Nondiscretionary bonuses and incentive payments (including commissions) may be applied to satisfy up to 10 percent of the standard salary level, provided these payments are made on a quarterly or more frequent basis.
— The annual compensation level to qualify for exemption as an HCEs is, as indicated above, increased from $100,000 to $134,000.
— The salary and compensation levels will automatically be increased every three years.
The Effective Date. The effective date of this Final Rule is December 1, 2016. On that day, the new standard salary level ($913 per week or $47,476 per year) and HCE total compensation requirement ($134,004 per year) will take effect. Future automatic updates to these thresholds will occur every three years, beginning on January 1, 2020.