Earlier this year, 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 time for complying with the new rule is just around the corner – the regulation goes into effect on December 1, 2016 regardless of the pending new presidential administration. What must you know as an employer and what should you do now to be prepared?
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 must do now to ensure your company is FLSA compliant when the new rules take effect:
One more thing to consider: December 1, 2016 falls on a Thursday. Employers may want to make changes beginning the week of November 27, 2016, so that wages and overtime calculations are not complicated by a mid-week starting point.
Even with a new presidential administration pending, the regulations are going into effect as scheduled. You must comply or risk potentially serious financial losses if your company is subject to a DOL audit. If this feels overwhelming and you do not know where to begin or if you have questions as you proceed with your preparation, please call us. We’re happy to help.