The U.S. Department of Labor (DOL) has issued this month its Final Rule raising the minimum salary amounts for certain workers to qualify for overtime exemption under the Fair Labor Standards Act (FLSA).
While the FLSA guarantees most employees an overtime premium equal to at least one and one-half times the employee’s regular rate of pay for hours worked over 40 in a workweek, it also provides exemptions for administrative, executive, professional, outside sales, and computer employees, as well as “highly compensated employees.”
To qualify for these national FLSA “white collar” exemptions, an employee’s principal job duties must meet certain requirements and the employer must pay him or her a salary equal to or exceeding certain minimums stated in the regulations. The new regulations do not change the required principal job duties. Rather, they increase the lowest salary that an employer must pay an otherwise-qualified white collar employee in order to classify the employee as exempt. The new number that the DOL adopted is equal to the “40th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region,” i.e., the South.
Under the current FLSA regulations, adopted in 2004, in order for an employer to classify an employee as an exempt professional, executive, administrative, or computer worker, it must pay the employee at least $455/week, $1,972/month, or $23,660/year. See DOL Fact Sheet #17A. When the new regulations take effect on December 1, 2016, an employer will need to pay a qualified employee a minimum of $913 per week, $3,957 per month or $47,476 annually in order to classify the employee as exempt from overtime. The Final Rule also provides for these numbers to be updated every three years.
Some states have their own laws on this subject. For example, California requires that exempt white collar workers be paid a salary at least double the minimum wage for a 40-hour week. Thus, at the current minimum wage of $10.00/hour, California requires a minimum salary of $41,600 annually ($10.00/hour x 40 x 52), $3,467 monthly ($41,600 ÷ 12), or $800 weekly to qualify a worker who is otherwise eligible by job duties as exempt.
The new regulations also raise the minimum annual salary for the “highly compensated employees” exemption from $100,000 to $134,004 annually. This amount is the 90th percentile for full-time, salaried workers nationally. See Final Rule.
All employers with salaried, exempt executives and administrators need to work out by the December 1, 2016 effective date how the Final Rule will affect their workforces. Some employees otherwise validly classified as exempt may already earn more than the required amount. For those that do not, the issue will be whether it will cost more to increase salary to $47,476 or more per year (or at least $3,957/month, $913/week) than to shift such persons to hourly (and overtime) wages. The challenge will of course be far greater for companies currently employing a great many exempt employees at salaries under the new minimums.
Helena Kobrin, May 26, 2016Back to Blog
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