UPDATE (December 1, 2016): A U.S. district judge in Texas has issued a preliminary injunction blocking the implementation of the new overtime rules until further notice or ruling. Please check back for more information.
Beginning on December 1, 2016, a new set of rules under the Fair Labor Standards Act (“FLSA”) will go into effect which will substantially impact employers throughout the United States. The new rules will substantially increase the minimum salary required to be an employee exempt from overtime pay under FLSA.
By default, most employees are “non-exempt” employees who are always entitled to minimum wage and overtime pay for all hours worked in excess of 40 hours in one workweek. However, FLSA allows certain exemptions to overtime pay requirements for certain administrative, professional, executive, and other highly compensated employees. In order to be considered an exempt employee under any of these exemptions, there are specific salary and duties tests that employees must satisfy, one of which is a minimum salary requirement.
The final rules announced by the Department of Labor, which will become effective on December 1, 2016, will increase the minimum salary required to be paid to employees otherwise meeting the administrative, professional, and executive exemptions from $455.00 per week to $913.00 per week (or from $23,660.00 per year to $47,476.00 per year). In order to assist employers in fulfilling these minimum requirements, the new rules also allow employers to use nondiscretionary bonuses (announced or promised in advance), incentive payments, and commissions to satisfy up to 10 percent of the minimum salary requirement under the administrative, professional, and execute exemptions.
The new rules will also raise the minimum total compensation required for employees otherwise meeting the highly compensated employee exemption from $100,000.00 to $134,004.00 per year, which must include a minimum $913.00 weekly salary.
In addition, the new minimum salary figures under FLSA will be automatically adjusted every three years, beginning on January 1, 2020. This will force employers to monitor these adjustments in under to remain compliant with the new rules.
There are various options and strategies that employers may put into effect to ensure they remain compliant with the new FLSA salary standards. These options include raising the salaries of exempt employees to the required levels, or reclassifying any affected employees as non-exempt, and pay them overtime whenever earned. Both of the options above can bring forth various economic and legal issues that employers need to consider before implementing any changes.
Employers must also keep in mind that even if an employee meets the salary exemption test, the employee must also satisfy the duties test in order to remain an exempt employee. More information of the duties test for each exemption can be found here.
If you need assistance in understanding the new FLSA overtime rules, deciding whether or not your employees are considered exempt or non-exempt, or implementing one of the options or strategies necessary to comply and remain compliant with the new overtime rules, contact a business law attorney.
Employers may also be interested in learning about some overtime practices to avoid by clicking here.