The New White Collar Overtime Exemption Rule
The U.S. Department of Labor has released the final version of its “white collar” overtime exemption rule, which raises the minimum salary threshold required to qualify for the Fair Labor Standards Act’s “white collar” exemptions to $47,476 per year (or $913 per week). The new exemption threshold is more than double the current salary threshold of $23,660 (or $455 per week),
The impact of the new rule will be significant, to say the least. It will affect at least 4.2 million employees across the country who are currently considered an exempt executive, administrative, and/or professional employee, and earns less than the new minimum salary threshold. The new rule goes into effect on December 1st, 2016, by which date all of these employees will have to be reclassified as non-exempt or given a raise.
The final rule does permit employers to count non-discretionary bonuses, incentive payments, and commissions, that are paid at least quarterly, to account for up to 10 percent of the new salary threshold. The salary threshold also will adjust every three years. It will be tied to the salary level at the 40th percentile of earnings of full-time salaried employees in the lowest-wage Census region, which currently is the South. This is a key departure from the proposed rule, which had suggested that the salary threshold may be adjusted annually and tied to a consumer price index.
Another key component of the final rule relates to the “highly compensated employee” exemption, which applies to employees performing at least one, but not all, of the duties of an exempt executive, administrative or professional employee. The final rule increased the salary threshold applicable to this exemption from $100,000 to $134,004. This salary threshold also will change every three years and will be tied to the total annual compensation level at the 90th percentile of full-time salaried workers nationally.
December 1st will arrive in the relative blink of an eye, and employers should not delay in determining what changes they need to undertake to comply with the new rule.