by Jean Bender

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On May 18, 2016, President Obama and Secretary Perez announced the publication of the U.S. Department of Labor’s long-awaited Final Rule, updating regulations under the Fair Labor Standards Act governing the salary requirements for overtime exemptions for certain “white collar” workers.

Salary Level Increase

The salary level will increase from $23,660 ($455 per week) to $47,476 ($913 per week) beginning December 1, 2016.

The new salary level is more than double the current salary level, but is lower than the salary level the DOL originally proposed in July 2015 ($50,440).   The Final Rule retains the 40th percentile standard but sets the rate based on the salary for workers in the lowest-wage Census Region (currently, the South), instead of nationwide salary levels.

Updates Every Three Years

The DOL will update salary levels every three years beginning in 2020.

While the DOL initially proposed annual updates to the salary basis test, the Final Rule provides automatic updates every three years, beginning on January 1, 2020. The updated salary basis threshold will be based on the 40th percentile earnings for full-time salaried workers in the lowest-wage Census Region. The DOL will publish the updated rates in the Federal Register at least 150 days before their effective date. Based on current estimates and wage growth projections, the minimum salary threshold could rise to $51,000 by 2020. This automatic salary update is unprecedented in the history of the FLSA.

Bonuses, Commissions, Incentives

For the first time, employers will be permitted to use nondiscretionary bonuses, commissions and incentive pay to satisfy up to 10% of salary level requirement beginning December 1, 2016.

Previously employers were prohibited from using commissions, nondiscretionary bonuses or other incentive payments to satisfy the salary level requirement. Under the Final Rule, only 10% of the salary level can be paid in the form of these types of incentive pay, and it must be paid on a quarterly or more frequent basis. The Final Rule does permit employers to make a “catch up” payment if the employee has not earned sufficient commissions to satisfy the salary level requirement on at least a quarterly basis.

Employers should conduct an immediate audit of their workforce, including all of their employees affected by the increase in the salary basis test.

For assistance in reviewing your company’s compliance with these new rules or for general questions regarding the FLSA, contact Jean Bender at jbender@dehs.com.

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Davenport, Evans, Hurwitz & Smith, LLP, located in Sioux Falls, South Dakota, is one of the state’s largest law firms. The firm’s attorneys provide business and litigation counsel to individuals and corporate clients in a variety of practice areas. For more information about Davenport Evans, visit www.dehs.com.