FLSA Overtime Rule Changes Finally Released
On May 18, 2016, the U.S. Department of Labor finally released its rules updating the overtime regulations under the Fair Labor Standards Act (“FLSA”) which will take effect December 1, 2016. Not surprisingly, the updates significantly increase the salary threshold for executive, administrative and professional workers (“white collar employees”) and for highly compensated employees and include automatic updates to these thresholds going forward.
Under the new rules, any employee earning less than $47,476 a year ($913 a week) will be a covered non-exempt employee entitled to overtime. This new threshold, up from $23,660 ($455 a week), equals the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region. Additionally, unlike the previously static threshold, the new rules will be adjusted upward every three years to reflect cost of living adjustments with the first update taking effect on January 1, 2020.
The new rule also increased the total annual compensation threshold for highly compensated employees from an annual salary of $100,000 to $122,148 (linked to 90th % percentile of earnings of full-time salaried workers in the lowest-wage Census Region). Connecticut employers should not rely on this change as Connecticut does not recognize the highly compensated employee exemption.
Although the new rules do not change the “duties test” under the FLSA, they do amend the “salary basis test” to allow employers to credit nondiscretionary bonuses and incentive payments (including commissions) towards satisfying up to 10% of the new salary threshold, so long as employers pay those amounts on a quarterly or more frequent basis.
Given the new rules, employers must now either raise salaries of affected employees to meet the new threshold or begin treating these employees as nonexempt. Employers must ensure that all “exempt” employees meet the duties tests for their applicable exemption and earn a salary that is high enough to satisfy the new threshold. Employers should also take this opportunity to confirm that each “exempt” employee actually performs duties that meet their applicable exemption, regardless of the employee’s title or job description.