On May 18, the Department of Labor issued the long-awaited regulatory amendments to the white collar exemptions under the Fair Labor Standards Act. Proposed changes were published last summer, and after a period of public comment (and more DOL thought and analysis) the regulations in their final form (known as the Final Rule) are now on the street.
In general, the regulatory changes are as expected and will go into effect on December 1, 2016. The focal point of the changes was to increase the minimum salary for exempt status. Although the proposed changes suggested the new salary could be at or above $50,000 per year, the Final Rule adopts a more conservative figure (in DOL’s eyes) of $913 per week ($47,476 annually). While certainly less than what it could have been, this still represents a more than 100% increase over the current minimum salary of $455 per week ($23,660 annually).
Similarly, for employers who utilize the exemption for highly compensated employees, the minimum compensation figure will increase from its current annual amount of $100,000 to $134,004.
Also as expected, the new regulations will incorporate an automatic salary update, but instead of the annual updates that the proposed regulations suggested, the Final Rule adopts an update schedule of every three years. Thus, after the new salary amounts go into effect on December 1st, they’ll remain in place until January 1, 2020, and will update every three years after that.
A small silver lining to the new rules is that employers will now be able to apply nondiscretionary bonuses and commissions for up to 10% of the applicable minimum salary. The bonus/commissions must be paid at least quarterly and a mechanism will exist to allow employers to provide a make-up payment each quarter if an employee’s bonuses or commissions are less than what was needed to meet the requirement.
Notably, DOL did not make any changes to the job duties tests for the white-collar exemptions. These requirements remain unchanged, so even with a salary that complies with the new minimum, employers must still ensure that each of their exempt employees meets the job duties requirements for the applicable exemption.
More information on these changes and recommendations for compliance will be forthcoming later this week in an Issue Alert.