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US Department of Labor Issues Final Rule Regarding FLSA White Collar Exemptions

Choate Alert

 | May 19, 2016

 | Labor, Employment and Benefits Group

Yesterday, the US Department of Labor issued its final rule regarding the white collar exemption under the Fair Labor Standards Act. Most notably, this rule raises the minimum annual salary for employees to qualify as exempt from $23,660 to $47,476.

What you need to know:

The DOL announced last year that it planned to amend the rules regarding the white collar exemption under the FLSA. It issued a proposed rule in June 2015 and has since revised the rule and issued the final version today.  This rule will take effect on December 1, 2016.

Under the FLSA, an employee can be classified as exempt from overtime if the employee performs certain white collar job duties and also earns a certain minimum salary. The job duties – which fall into the categories of executive, administrative, professional, outside sales and computer employees – are specific and remain unchanged under the new rule. The new rule does, however, raise the minimum annual salary for employees to qualify as exempt from overtime under the FLSA’s white collar exemption from $23,660 to $47,476. The $47,476 minimum salary is based on a weekly salary of $913, which represents the 40th percentile of weekly earnings for full-time, salaried workers in the United States’ lowest income region.  The rule also provides that the minimum salary will be automatically adjusted every three years to reflect changes to the 40th percentile of weekly earnings.

The FLSA also provides that certain “highly-compensated workers” can also be deemed exempt under a less stringent job duties test. Previously, the FLSA defined highly-compensated workers as those earning $100,000 or more per year, but the new rule increases that amount to $134,004.

Despite these changes, the new rule does have some upside for employers. First, the new rule allows employers to use bonuses and commissions to satisfy up to 10% of the threshold salary.  Previously, these payments could not be included.  Furthermore, the DOL declined to adjust the white collar duties test in order to make it more difficult for employees to qualify for this exemption.

What you need to do:

Before December 1, 2016, any employees who are classified as exempt but earn less than $47,476 must either be reclassified as non-exempt or have their salaries adjusted to exceed this threshold. Reclassified employees will be eligible for overtime pay of one-and-one-half times their regular rate for any time worked over 40 hours in any week.  Employers must track and keep accurate records of hours worked for these employees.  If an employer wishes to avoid paying overtime, the employer will have to ensure that overtime is not worked.  Employers can institute policies forbidding overtime work without authorization, but if an employee works overtime without receiving authorization, the employer can discipline or terminate the employee but must still pay the employee for the overtime worked.

In addition, the new rule presents an opportunity for employers to look more generally at the classification of its employees. Employee misclassification is a widespread issue that can lead to substantial liability.  Therefore, it is imperative for employers to examine their workforces closely to ensure that all employees classified as exempt indeed meet the threshold minimum salary as well as the specific duties for the white collar exemption.


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