This morning, the Department of Labor announced its long-awaited final regulations, which are poised to greatly expand the number of employees who are eligible for overtime pay. This rule will go into effect on December 1, 2016.
A Minimum Salary of $47,476 per Year
The most significant change is that in order to meet the salary basis test for the white-collar exemptions (executive, administrative and professional), employees must be paid a minimum of $47,476 per year or $913 per week. The threshold was set based on the 40th percentile of full-time salaried workers in the lowest income Census Region, currently the South. While this increase is lower than the originally proposed $50,440 per year, it will make a significant number of previously-exempt employees eligible for overtime.
Some Exceptions to Note
In a departure from the prior rule, non-discretionary bonuses, incentive payments, and commissions, may count toward up to 10 percent of the $47,476 threshold – therefore, an employee who receives a base salary of $42,729 per year may be exempt, so long as the employee also receives a minimum of $4,747 in non-discretionary bonus, commission or incentive compensation, paid on at least a quarterly basis.
The $47,476 minimum salary level does not apply to employees who qualify for an exemption that is not tied to a salary requirement, for example, outside sales employees, teachers, attorneys and physicians.
Increases Every Three Years
Salary thresholds for exempt employees will increase every three years, beginning January 1, 2020, to continue to reflect the 40th percentile for salaried workers in the lowest income Census Region, anticipated to reach $51,000 in 2020.
The final rule does not impact the so-called “duties tests” for these white collar exemptions.
Highly Compensated Employees
Additionally, the total compensation requirement for “highly compensated employees” has increased from $100,000 to $134,004 annually, equal to the 90th percentile of full-time salaried workers nationally. The threshold level for these employees is based on total annual compensation, not just those amounts paid on a salary basis, and will also adjust every three years. Such employees require “only a minimum showing” that they are otherwise exempt under one of the duties tests.
This regulatory update is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice. Content provided by our professional consulting partners at Synergy Human Resources.