On Wednesday, May 18, 2016, the U.S. Department of Labor published a new rule that will increase the salary requirements for “exempt” employees under the Fair Labor Standards Act. The regulation will go into effect on December 1, 2016, giving employers fewer than 200 days to prepare. What does this mean for you as an employer and what must you do now to be ready for the upcoming change?
Under the Fair Labor Standards Act (FLSA), non-exempt employees must be paid 1.5 times their regular pay rate for any time worked over 40 in a workweek. However, certain employees may be categorized as “exempt” from the FLSA’s overtime requirement. The exemption depends on three things:
The new regulation affects the second factor – the salary threshold. Currently, an employee must be paid at least $455 per week or $23,600 per year to satisfy the salary requirement. The new regulation more than doubles the required salary threshold to $913 per week or $47,476 per year for non-Highly Compensated Employees. The salary requirement for Highly Compensated Employees will increase from $100,000 to $134,004 per year. The Department of Labor will update the salary threshold every three years moving forward. The next adjustment after the new rule takes effect will be on January 1, 2020.
The new rule now allows employers to meet the salary threshold for non-Highly Compensated Employees through the payment of non-discretionary bonuses, incentive pay, or commissions. However, these payments must be made at least quarterly. If an employee does not earn enough of a non-discretionary bonus, incentive pay, or commissions in a quarter to meet the required salary level, employers may make a catch up payment no later than the next pay period after the end of the quarter. The catch up payment must be counted toward the prior quarter’s salary.
There are some things you should do now to ensure your company is FLSA compliant when the new rules take effect:
If this feels overwhelming and you do not know where to begin, or if you have questions as you proceed with your preparation, we’d appreciate the opportunity to help. Remember, non-compliance can be very costly for your organization if you are subject to a DOL audit. Preparing now will make the transition easier for your organization when the rule goes into effect on December 1, 2016.