The long awaited, and much anticipated, Final Rule affecting millions of employees currently exempt under the federal Fair Labor Standards Act (“FLSA”) has arrived. (Feel free to read an email from President Obama announcing the publication).
The Final Rule will go into effect on December 1, 2016. Although employers have been preparing since it was first proposed last year, they now have a little less than six (6) months to conclude any operational or personnel changes and come into compliance. Below are some highlights of the Final Rule for initial consideration and continued preparation.
More than Doubles the Minimum Salary Basis Requirement
As noted in prior articles, the Final Rule focuses primarily on the minimum salary basis requirement necessary to claim an employee as exempt under the Executive, Administrative or Professional exemptions, commonly referred to as the “white collar exemptions.” Specifically, the Final Rule departs slightly from the proposed rule. Instead of the proposed $970.00 per week, the DOL set the minimum salary requirement at $913.00 per week ($47,476.00 annually).
Although this is a slight downward departure, it is still a significant increase that more than doubles the current minimum salary basis requirement. The rationale for creating the $913.00 per week threshold stemmed from a desire that it be commensurate with the 40th percentile of earnings of full-time salaried workers in the country’s lowest-wage Census Region, currently the South.
Incorporates Automatic Minimum Salary Basis Review Mechanism
Unlike prior rules that set the minimum salary requirement and left it alone, the Final Rule provides a mechanism to update the minimum salary requirement and compensation levels every three (3) years to continue coinciding with the above stated earnings percentile in the country’s lowest-wage Census Region.
Beginning on January 1, 2020, and continuing every three (3) years thereafter, employers will have to address exempt employees’ salaries for continued compliance. In other words, the Final Rule places an additional administrative requirement on employers by building in a potential raise that may or may not coincide with a company’s overall business strategy.
Non-Discretionary Bonuses and Incentive Payments Credit Toward Minimum Salary
The DOL took into account, to some extent, the many thousands of comments received from employers and business groups regarding the Final Rule’s significant impact on business. It therefore provides employers a new tool not previously at their disposal. Under the Final Rule, employers are able to use an employee’s non-discretionary bonuses and other incentive pay (such as commissions) to account for up to ten percent (10%) of the new $913.00 minimum weekly salary basis requirement.
Increases Highly Compensated Employee Annual Salary Threshold
The Final Rule also addressed the FLSA’s highly compensated employee exemption. The Final Rule raises the annual compensation for this exemption from $100,000.00 to $134,004.00. The rationale for this increase is also tied to a national percentile. Specifically, the DOL made this increase to bring annual compensation in line with the equivalent of the 90th percentile of full-time salaried employees nationally. Note that the three (3) year review mechanism to potentially increase the salary threshold also applies to the annual compensation requirement for this exemption.
Like any government regulation, the devil is in the details. The above highlights are sure to be blanketed with caveats and other administrative and logistical requirements necessary to ensure complete compliance and to avoid exposure to costly litigation. For assistance with continued preparation for the Final Rule and to evaluate a strategy to address problematic exempt employee classifications, as well as any other wage and hour matters, contact Rinke Noonan attorney Chad Staul at (320) 251-6700, or firstname.lastname@example.org.
© 2016 Rinke Noonan