As indicated in my prior posts, new changes were proposed by the United States Department of Labor’s Wage and Hour Division (the “DOL”) for “white collar” exemptions under the Fair Labor Standards Act – being the executive, administrative, professional and highly-compensated employee exemptions. The changes have now been approved.
On December 1, 2016, the final rule will go into effect, which is anticipated to affect over 4 million salaried workers. Here are some highlights of the rule:
- The salary threshold for white collar employees will increase to $47,476 per year (or $913 per week), which is an increase from the current salary of $23,660 per year (or $455 per week).
- The salary threshold for highly compensated employees will increase to $134,004 per year, up from $100,000 per year.
- Non-discretionary bonuses, incentive payments and commissions may count for up to 10% of the minimum salary, provided these amounts are paid at least quarterly.
Moving forward, instead of waiting to catch up with the times in one fell swoop, the new minimum salary levels will be adjusted every three years, beginning January 1, 2020. This adjustment will be tied to the 40th percentile of full-time salaried workers based on a certain census. It is anticipated that the minimum salary will go up to $51,168 per year in 2020. As for highly compensated employees, this will be based on the 90th percentile of the same census, which is anticipated to increase to $147,524 in 2020.
Notably, there were no changes to the duties tests for the white collar exemptions.
What’s the fallout? Employers will now have to assess whether they will convert their exempt employees to non-exempt by paying them an hourly wage, or increase the salary to meet the new threshold. Converting employees can be complicated, as many employers did not track time for exempt employees. Given the December 1, 2016 effective date, employers should start tracking time for employees who they will not want to increase to the new salary threshold, in order to accurately assess an hourly rate (and overtime rate if applicable).