What's happening?

On May 18, 2016, the U.S. Department of Labor (DOL) announced the release of a final rule updating regulations under the Fair Labor Standards Act (FLSA) which exempt executive, administrative, and professional employees from its minimum wage and overtime requirements (often referred to as the white collar exemptions). The rule was published in the May 23, 2016 Federal Register and goes into effect on December 1, 2016.

While the FLSA provides minimum wage and overtime pay protections for most employees, some workers, including bona fide executive, administrative, and professional employees, are exempt from those protections. For more than a half century, the DOL regulations have generally required each of the following three tests to be met for this exemption to apply:
  • The employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (salary basis test);
  • The amount of salary paid must meet a minimum specified amount (salary level test); and
  • The employee's job duties must primarily involve executive, administrative, or professional duties as defined by the regulations (duties test).
The DOL last updated these regulations in 2004, when it set the weekly salary level at $455 ($23,660 annually) and made other changes to the regulations, including collapsing the short and long duties tests into a single standard duties test and introducing a new exemption for highly compensated employees.

Under the final rule:
  • The annual salary threshold for exempt positions will be $47,476 annually or $913 per week;
  • There will be no change to the duties test that are used to determine employee classification;
  • Highly Compensated Employees, also known as HCEs (employees currently earning $100,000) salary threshold will be increased to $134,004;
  • Non-discretionary bonuses, incentive payments and commissions may be used to account for 10% of the salary threshold but must be paid quarterly; 
  • New salary adjustments will be automatic every three years, with the DOL providing 150 days' advance notice of what those new numbers will be. 
What does this mean for you?

There are a few things that employers need to do in order to get prepared for the December 1, 2016 effective date.

The new rule's focus is to ensure that workers are properly classified based on their job duties and to ensure that their pay is in line with their role. In some instances, this new rule may cause an individual who has been classified as "salaried exempt" to be reclassified as "hourly non-exempt". Employers should begin reviewing their employees' status now to make the appropriate determinations and budgetary changes needed to ensure compliance. Employers must also understand that having to re-classify some employees may impact more than just their paychecks. These reclassification changes extend out and can affect other areas, such as PTO policies, benefit plans, email policies and more, so employers should proactively evaluate these areas as well.

Start getting prepared now by: 
  1. Identifying which of your employees will be impacted by this new rule. 
  2. Review their job descriptions to determine if any changes should be made based on their current job duties. 
  3. Identify any other benefits (PTO, health/ancillary, remote work capabilities, etc.) that may be impacted for each individual. 
  4. Prepare the affected employee(s) by explaining the new DOL rule and how it will impact them. 
  5. Evaluate your current timekeeping system to ensure that it has the ability to support your workforce and keep you compliant. Pencil and paper timesheets are not advisable - the DOL will want to see actual clock-in and clock-out times for all hourly employees. 
  6. Realize that these changes could have an impact on the morale in your organization, so be proactive to take steps now to minimize this as much as possible.
Thank you, 
George Knox, CLU, ChFC
214.695.2904 (mobile) 214.443.1400 (office) |

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