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Who Will (and Won’t) be Affected by the DOL’s Changes to White Collar Overtime Exemptions

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On May 18, 2016, the Department of Labor (DOL) issued its long awaited revisions to the Fair Labor Standards Act (FLSA) regulations, which significantly raise the salary thresholds required for white collar overtime exemptions. The changes take effect on December 1, 2016.

I. Summary of Key Changes

The key revisions focus on raising the salary levels required to qualify for the executive, administrative, and professional employee exemptions under the FLSA. Specifically, the DOL’s revised rule:

  • Raises the salary threshold required by the annual salary level test from $23,660 ($455 a week) to $47,476 ($913 a week). This essentially doubles the current salary requirement.
  • Raises the total annual compensation requirement for highly compensated employees from $100,000 to $134,004.
  • Establishes a mechanism for automatically updating the salary and compensation levels every three years. The first change will take effect in 2020.
  • Allows employers to use nondiscretionary bonuses, incentive payments, and commissions to satisfy up to 10% of the new standard salary requirement.

The revised rules are expected to make approximately 4.2 million salaried employees eligible for overtime compensation.

II. Types of Employees Whose Exemption Status will not be Affected

While many more employees will be eligible for overtime, there are a number of salaried employees whose exemption status will not change even when paid less than the minimum salary. Among these unaffected employees are:

  • Teachers: Teachers are exempt if their primary duty is teaching, tutoring, instructing or lecturing in the activity of imparting knowledge, if they are employed and engaged in this activity as a teacher in an educational establishment. The salary and salary basis requirements do not apply to bona fide teachers.
  • Doctors and lawyers: An employee holding a valid license or certificate permitting the practice of law or medicine is exempt if the employee is actually engaged in such a practice. The salary and salary basis requirements do not apply to bona fide practitioners of law or medicine.
  • Computer workers: Salaried computer workers who earn a weekly salary of not less than $455 and hourly computer employees who earn at least $27.63 per hour and perform certain duties continue to be exempt from overtime regulations. The revised regulations did not raise the pay thresholds for computer workers.
  • Outside sales employees: Outside sales employees who are currently exempt from overtime regulations will continue to be exempt under the revised rules because these employees are not subject to a salary or fee basis test.

III. Employers’ Options for Compliance

Employers have several options to choose from in preparation for the revised rule’s December 1, 2016 implementation date. For example, after evaluating their current workforce, employers may elect to:

  • Raise salaries: Employers can raise the salaries of employees who currently meet the duties tests, but do not meet the new salary test, regularly work overtime, and are paid on a salary basis. By doing so, these employees will maintain their exempt status.
  • Pay salaried employees overtime: If a salaried, white collar employee makes less than $47,476, employers can continue to pay their newly overtime-eligible employees the same salary, and pay them overtime whenever they work more than forty hours in a week.
  • Adjust wages: Employers can adjust the amount of an employee’s earnings to reallocate it between regular wages and overtime so that the total amount paid to the employee remains roughly the same. Employers may not, however, reduce an employee’s hourly wage below the highest applicable minimum wage (federal, state, or local), or continually adjust wages each workweek in order to manipulate the regular rate.
  • Evaluate and realign hours and staff workload: Employers can reorganize workload distributions or adjust employee schedules in order to comply with the revised rules.

IV. Conclusion

Because every employer’s needs are unique, an individualized assessment of each employer’s workforce should be conducted. Misclassifying employee exemptions can be a costly mistake, so we recommend you consult Dan Vliet, Susan Love, or your Buelow Vetter attorney to assist you in complying with these newly revised FLSA regulations.

Furthermore, we encourage you to join us for a Breakfast Briefing on Thursday, June 2, 2016 to help your organization prepare to implement these changes to the white collar overtime exemptions and address other trending FLSA issues. Register for the event >

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