THE DOL ISSUES FINAL RULE ON FLSA OVERTIME EXEMPTION REGULATIONS

On May 18, 2016, President Obama and Secretary Perez announced the publication of the Department of Labor’s (DOL) final rule updating the overtime regulations under the Fair Labor Standards Act (“FLSA”), impacting millions of workers classified as exempt under the executive, administrative and professional exemptions (“white collar exemptions”) as well as the highly compensated employee exemption.  The rules will become effective on December 1, 2016.

KEY PROVISIONS OF THE FINAL RULE

• The minimum salary level for white collar exemptions will be $913 per week ($47,476 annualized)—up from the current $455 per week ($23,660 annualized).
• The new total compensation level for highly compensated employees will be $134,004 annually—a significant increase from the current $100,000.
• Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.
• The salary basis test is amended to permit employers to satisfy up to 10% of the new salary threshold through nondiscretionary bonuses and other incentive payments, including commissions, provided that payments are made at least quarterly.

WHAT TO DO NOW

• Identify currently exempt jobs with salaries that fall below the proposed new salary threshold for exempt employees, using $913 per week, or $47,476 per year.
• Determine which employees close to the new threshold will get bumped up to maintain exempt status, or whether the approach will be to reclassify as nonexempt all employees whose current salary is below the new minimum.
• For employees who probably will be reclassified as nonexempt, understand now how many hours they are working per week so employers can model pay going forward with reasonable accuracy.
• Determine what approach to take in setting nonexempt pay rates.
• For employees subject to the highly compensated standard but below its new proposed pay level—that is, between $100,000 and $134,004 per year—determine whether those jobs satisfy the full duties test of one or more exemptions, as opposed to the relaxed duties standard applicable for highly compensated employees.
• Consider whether to reclassify other positions at this time to manage risk and enhance compliance.
• Increase employee salaries as necessary by December 1, 2016.

The DOL has released a number of resources to accompany its announcement, that can be accessed at www.dol.gov:

• Fact sheet;
• Frequently asked questions;
• Guides for small businesses, non-profits, higher education, and state and local governments;
• Technical guidance for private employers, non-profits, and higher education.

ADDITIONAL INFORMATION

We will continue to provide further updates as the Final Rule is analyzed. In the interim, please contact your McCormick Barstow LLP attorney or the author of this alert:

Christina C. Tillman

christina.tillman@mccormickbarstow.com

(559) 433-2358

This Employment Law Client Alert is a publication of McCormick Barstow LLP. It is intended to notify our clients and friends of changes and updates to the law and provide general information about employment law matters. This Client Alert is not intended, nor should it be used, as legal advice, and it does not create an attorney-client relationship.