U.S. Department of Labor Release New Overtime White Collar Exemption Requirements
May 18, 2016
U.S. Department of Labor Release New Overtime White Collar Exemption Requirements
The U.S. Department of Labor released the final version of the new rule updating the requirements for certain “white collar” employees (supervisors/executives, administrators and certain professionals) to be considered exempt from overtime eligibility. In order to be correctly classified as exempt from overtime, an employee must be paid a minimum weekly salary paid on a true salary basis as well as perform exempt job duties. Under the prior version of the rule, the threshold minimum salary was $455 per week, or $23,660 per year. The updated version of the rule raises that threshold to $913 per week, or $47,476 per year. This level is set to be readjusted every three years beginning January 1, 2020. Also, certain nondiscretionary bonuses, incentive payments and commissions can now be included as part of the required minimum salary.
In addition, the new rule adjusts the threshold for the exemption for highly compensated employees from $100,000 per year to $134,000 per year.
The new rule is effective December 1, 2016, but it is important to begin planning for the changes now.
This new rule impacts any employer covered by the federal Fair Labor Standards Act who currently has salaried exempt employees making less than $913/week ($47,476/year). Examples could include front line supervisors for manufacturers and processing plants, retail store managers, restaurant managers/supervisors, human resource managers, controllers or other back office administrative personnel, nurses, medical clinic office managers/administrators, and construction supervisors.
If an employer has an employee it classifies as salaried exempt that currently makes below the new salary threshold, it has two options: 1) raise the employee’s salary to at or above the new threshold to maintain the exempt status; or 2) reclassify the employee as non-exempt from overtime and make any necessary corresponding changes to that employee’s position and pay structure (note: this may or may not include changing the employee to pay on an hourly basis). There are also record keeping requirements for non-exempt employees regarding hours worked, and we foresee significant issues in tracking working time for newly reclassified employees who were not required to track or record their working time previously.
Even prior to this new rule, wage and hour litigation has exploded. In the last ten years, the number of wage and hour lawsuits filed has more than doubled, and many of those cases involved allegations of unpaid overtime from allegedly misclassified employees. A rule change is always a good opportunity to review all job categories to make sure classifications are accurate and up to date.
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This Alert is provided to Clients and friends of the Firm. If you have questions regarding any of the items discussed, please contact Elizabeth R. Murray at (501)370-1534 or [email protected].