Overtime Rules Change Under the Fair Labor Standards Act (FLSA)

Beginning on December 1, 2016, the revised regulations of the FLSA implementing the exemption from overtime pay for executive, administrative, professional, outside sales, and computer employee (a.k.a. ‘‘EAP’’ or ‘‘white collar’’ exemptions), will become effective. Here is what you need to know about the Final Rule:

Key Provisions

The Final Rule updates the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt from overtime payment. Once effective, white collar employees must be paid the standard salary level amount of $913 per week ($47,476 per year) in order to be exempt from overtime pay requirements. Salaried white collar employees paid below $913 per week would be entitled to overtime pay, while employees paid at or above $913 per week may be exempt from overtime if they primarily perform certain duties.

Also, the Final Rule raises the compensation level for highly compensated employees (HCE) subject to a more minimal duties test to $134,004 annually (amount will be automatically updated every three years starting on January 1, 2020).

Who is Eligible for the White Collar Exemption?

For the white collar exemption to apply, an employee’s specific job duties and earnings must meet all of the applicable requirements provided in the regulations. Not all salaried white collar employees qualify for the white collar exemptions. The regulations require individuals to satisfy the following three criteria to be exempt from overtime requirements:

  1. They must be paid on a salary basis not subject to reduction based on quality or quantity of work (“salary basis test”) rather than, for example, on an hourly basis;
  1. Their salary must meet the minimum salary level of $913 per week, which is equivalent to $47,476 annually for a full-year worker (“salary level test”); and
  1. The employee’s primary job duty must involve the kind of work associated with exempt executive, administrative, or professional employees (the “standard duties test”). Click Here for more details on the white collar exemptions.

Ten percent (10%) of the standard salary level amount for EAP exemptions may be from nondiscretionary bonuses and incentive payments (including commissions). Click Here for more details.

Compensation Level for Highly Compensated Employees (HCE)

The Final Rule made changes to the highly compensated employee exemption and how bonuses are treated for the purposes of determining an employee’s exempt status. Employees who receive total annual compensation of at least $134,004 annually will be exempt from the overtime requirements if they meet a more relaxed duties test than is required for employees paid the standard salary level.

Highly compensated employees will be exempt if they customarily and regularly perform at least one of the duties of an exempt executive, administrative, or professional employee (the “standard duties test”). As with the EAP exceptions, nondiscretionary bonuses and incentive payments (including commissions) may be included in the $134,004 requirement, but the employer must pay the minimum salary level ($913 per week) to qualify for this exemption.

How to comply?

The update in the federal rule will become effective on December 2016. Employers should find out whether they have employees who currently are classified as exempt and evaluate if they will still fall under the updated threshold.

If there are white collar employees who satisfy one of the duties test and earn less than $913 per week, but do not work more than 40 hours per week, then they can continue to be paid a salary as before. However, if they regularly work more than 40 hours per week, employers may choose to raise the salary to $913 per week or pay overtime for time worked above 40 hours in a week. Other alternatives might be reorganize workloads, adjust schedules, spread work hours, or adjust wages.

For more information visit the Department of Labor, Wage and Hour Division, Final Rule Website or contact your attorney.



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