As many of you know, the Department of Labor’s Wage and Hour Division published a final rule on May 18, 2016, amending the
FLSA regulations governing “white collar” exemptions. While I’m sure concerned citizens everywhere are lining up to read the new regulation in its entirety, for those of you whose interest has not yet prompted you to diligently study hundreds of pages worth of legal jargon, I’ve decided to provide you with the basics.
Why is this happening?? In 2014, President Obama directed Secretary Perez to update, simplify, and modernize overtime regulations for purposes of clarity, fairness, and ease. (The rules were last updated under the Bush administration in 2004).
What does this rule say anyway? A lot. But here are the highlights (or lowlights, depending on your perspective).
The rule primarily affects salary and compensation levels for the FLSA’s “white collar” exemptions (executive, administrative, and professional). To give you the basics (and let me emphasize basics), in order to be classified as exempt from certain rules governing minimum wage and overtime pay, an employee previously had to make $23,660/year ($455/week) and satisfy certain duties.
The new rule does not affect the duties test, but rather, drastically changes the salary requirement. Under the new regulation, employees must receive an annual salary of $47,476/year ($913/week) in order to be classified as exempt. This number represents the 40th percentile of earnings of full-time salaried workers in the lowest paid Census Region—the South (this mysteriously includes Virginia, Maryland, and D.C., which I think we can all agree are outsiders to “the South,” and conveniently have some of the highest earnings nationwide, causing drastic changes to this magical 40th percentile).
The rule also allows for automatic updates to the salary and compensation thresholds every three years, set to begin in January 2020. Word on the street/Hill is that this mechanism is designed to keep the salary/compensation levels current and ensure an effective test for the exemption.
Lastly, the total annual compensation requirement for highly compensated employees (those lone wolf employees who don’t necessarily fit neatly into one of the other exemptions) was changed from $100,000 to $134,004. This number represents the 90th percentile of full-time salaried workers nationally.
Why should I care? This rule is predicted to affect over 4 million workers. Employers are now faced with deciding how to compensate currently exempt employees who make less than $47,476 annually. The options/alternatives are plentiful, but nonetheless, will require significant time and resources to ensure compliance.
When is this happening? As I previously mentioned, the rule was published on May 18, 2016. And while compliance efforts are causing many businesses some serious heartburn, the DOL has oh so graciously extended the typical 60-day compliance window, and given businesses until December 1, 2016 to comply—a small sigh of relief for many.
Have any more questions regarding this recent FLSA ruling or other employment law issues? Contact us today! Whether you have questions about your contract or direct workforce, we are here to help.
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