Department of Labor’s Final Rule – Updates Overtime and “White Collar” Exemptions under the Fair Labor Standards Act

Posted on May 18, 2016

The Department of Labor (“DOL”) has, at last, issued its Final Rule on overtime. The key provisions of the Final Rule include: (i) increases to the minimum salary levels for employees to be classified as exempt under the FLSA from $455 to $913 per week or $23,660 per year to $47,476 per year; (ii) increase to the minimum salary level for “highly compensated employees” from $100,000 to $134,004; and (iii) provision for automatic updates to the salary and compensation levels every three years to maintain certain levels.

Additionally, the Final Rule allows employers to use nondiscretionary bonuses and incentive payments such as commissions to satisfy up to ten percent of the new salary levels.

Deadline: Employers have until December 1, 2016, to comply.

Recommended Steps for Compliance:
•Identify those employees who are currently classified as “exempt” and earn less than $913 per week or $47,476 per year.
•Identify those employees who are currently classified as “highly compensated” and earn less than $134,004 per year.
•Determine the cost of raising salaries to retain exempt status.
•Determine the cost of reclassifying employees as non-exempt (i.e., maintain current salary and pay overtime).
•Determine if it makes better sense to raise salaries or reclassify employees as non-exempt and pay overtime.
•Inform employees of the new rule and changes that the employer must make for compliance. Emphasize that reclassification from exempt to non-exempt is not a reflection of an employee’s work or value to the employer but is required by the new rule.
•Train supervisors to manage white collar nonexempt employees and overtime (e.g., hire additional workers; better distribution of workloads; require prior approval to work overtime).
•Train nonexempt employees to track and report time.
•Increase salaries or reclassify employees as non-exempt, which may include a restructuring of their pay.

A cost analysis will help employers decide its best course of action. For example, an employer may decide to raise the salary of those employees who are earning close to the new salary level and regularly work overtime. In this case, the employer may also decide to restructure the employee’s salary to include nondiscretionary bonuses and incentive payments to satisfy up to 10 percent of the standard salary test requirement. On the other hand, it may make better sense to reclassify those employees who typically work 40, or less, hours in a work week but occasionally have to work overtime. In this instance, an employer may decide to classify an employee as “salaried-nonexempt”. Salaried nonexempt employees receive a salary rate for a fixed number of hours. However, when they exceed the fixed number of hours and work more than 40 hours in a week, they receive overtime compensation.

Of course, this is not an exhaustive discussion of the Final Rule. For more information on this topic, visit https://www.dol.gov/whd/overtime/final2016/ or email Sandra White or Keith Sieczkowski, Labor & Employment Lawyers with BRANSCOMB LAW. Sandra’s contact information is swhite@branscomblaw.com or (210) 598-5400. Keith’s contact information is ksieczkowski@branscomblaw.com or (361) 886-3800.