By Mandy M. Nevius, Human Resources Manager
The Depart of Labor (DOL) released its final ruling on changes to the overtime exemptions outlined in the Fair Labor Standards Act. These changes will go into effect on December 1, 2016. It is estimated that the change will impact 4 million additional workers in the first year of implementation.
While most* employers are subject to the Fair Labor Standards Act (FLSA), companies with employees on their payroll who are classified as exempt from overtime (aka “salaried” employees) and whose salaries are less than $47,500 annually should pay particularly close attention:
New salary thresholds.
- The salary threshold for exempt status has increased from $455 per week ($23,660 annually) to $913 per week ($47,476 annually). Employees making less than $913 per week ($47,476 annually) will need to be reclassified or have their salaries appropriately adjusted.
- The threshold for employees who are currently considered highly compensated has increased from $100,000 annually to $134,000 annually.
Bonus and incentive payments.
Employers may use non-discretionary bonuses and incentive payments (including commissions) to meet the new threshold levels. These bonuses and incentive payments may not exceed more than 10% of the total salary and must be paid at least quarterly.
Tri-annual process review.
Companies must establish a process for reviewing and updating these thresholds automatically every three years.
- The new thresholds will be based on the 40th percentile for full-time salaried workers in the lowest wage census region (currently the South) and on the 90% percentile nationally for highly compensated employees.
- Automatic updates will begin in 2020 (then 2023, etc.). The DOL will publish new thresholds 150 days in advance of the new effective date.
The “duties test” did not change for determining exemption eligibility. For information on the various exemption tests (executive, administration, professional, computer, and outside sales) visit https://www.dol.gov/whd/overtime/fs17a_overview.htm.
The effective date for these changes is December 1, 2016.
The DOL may issue additional guidance throughout the year. We will continue to watch this issue and keep our clients updated.
Source: SHRM Society of Human Resource Management and ThinkHR (“It’s Finally Here! DOL Releases the New FLSA White Collar Overtime Exemption Rules” by Samantha Yurman, JD)
About the Author
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.