Authored by Alex Passantino
Tomorrow, the Department of Labor’s long-awaited revisions to the Fair Labor Standards Act’s white collar exemption will be announced. Although there certainly will be additional nuance identified once the entire package has been made available, here are the bottom line changes:
- The new salary level required for the executive, administrative, and professional exemptions will be $913 per week, which translates to $47,476 per year.
- Up to 10% of the salary level can be met with bonuses and commissions. For employers to credit nondiscretionary bonuses and incentive payments toward a portion of the standard salary level test, however, such payments must be paid on a quarterly or more frequent basis and the employer is “permitted” to make a “catch-up” payment. More specific details of this new development are still unclear.
- The new salary level required to take advantage of the highly-compensated employee provision of the exemptions will be $134,004 per year. Of that, $913 per week must be paid on a salary basis.
- The new levels will be effective on December 1, 2016. December 1 is a Thursday, which means that salary increases to ensure continued use of the exemption for weekly/biweekly employees must be made for the workweek (or pay period) that includes December 1.
- The salary level will be increased automatically every three years, starting in 2020. The amount will be based on the 40th percentile of full-time salaried workers in the region in which the salary level is lowest (historically, the South). The Department will publish the information in the Federal Register in advance of the increase. It is expected that the salary will be $51,000 per year on January 1, 2020.
The salary level represents a slight reduction from the expected level of $50,440 per year, which was identified by the Department in its proposed rule last year. In addition, although an automatic increase was proposed and expected, doing so every three years—instead of annually—provides a small relief for the compensation planning process.
Over the past year, there has been a great deal of discussion about what the Final Rule might contain. Given those discussions, it is notable that the final rule does not:
- change the regulatory text for primary duty;
- revise the tests for the duties required of executive, administrative, or professional employees;
- amend the salary basis test;
- apply any new compensation standards to doctors, lawyers, teachers, or outside sales employees; or
- make any changes to the computer professional exemption (other than the salary increase, as may be applicable).
We will keep you updated once the Final Rule is available in its entirety.
You can register for our webinar discussing the changes here.
UPDATE (5/18/16): The Final Rule is posted.