FLSA Exemption Changes Released by DOL
May 20, 2016The Department of Labor (DOL) has released the much anticipated Fair Labor Standards Act (FLSA) exemption changes.
In July 2015, proposed changes were released for comment on this important employment issue. On May 18, 2016, the DOL announced the final rule. The changes to the FLSA will published in the Federal Register on May 23, 2016 and will be effective on December 1, 2016.
So, what’s in store?
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The new salary exemption threshold will be $913 a week or roughly $47,476 annually. This limit will be changed every 3 years using the 40th percentile of earnings for full-time salaried workers in the lowest-wage Census region.
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The total compensation limit for highly compensated employees is increasing from $100,000 to $134,004. This limit will be changed automatically every three years as well using the 90th percentile of earnings, but the baseline will have no emphasis on region.
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As a new component, employers may include nondiscretionary bonuses and incentive payments to satisfy up to 10 percent of the salary requirements. There are specific limitations on what is necessary for a bonus to be eligible for inclusion.
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In lieu of an annual increase to the thresholds, the DOL opted for a 3 year mechanism to keep the limits up-to-date.
The final rule did not include any changes to the duties test as some had anticipated. The first update will occur on January 1, 2020. The new salary limits will be announced in the Federal Register or on the DOL website approximately 150 days prior to the effective date.
The real significance of this for employers lies in overtime pay requirements under the FLSA. If an employee does not fall under an applicable exemption, then any hours over 40 per week worked by that employee are subject to overtime requirements if the business is subject to the FLSA. The FLSA is designed to be broadly sweeping and covers workers that are engaged in interstate commerce which includes most businesses large and small. Since the salary limits were last updated in 2004, this final rule will likely affect a large percentage of employees that are currently considered to be exempt.
It is critical that businesses review their job descriptions and salaries to determine what changes needed to be made in order to be compliant. If employers chose not to raise salary levels to reach the $47,476 limit, it will be necessary to reclassify those employees are non-exempt. Employers would also need to start tracking employee hours and develop a clear policy regarding overtime. Each employer will have to decide what makes the most sense both financially and practically for their business to make sure they are in compliance.
Nicole Crump, JD, CIC
Director of Employment ADR
EDR Systems
This information is the opinion of the writer and is not meant to be construed as creating an attorney-client relationship or as legal advice to an individual or business. Please consult your attorney if you need legal advice on the issues above.