On May 18, 2016, the Department of Labor finally issued its much anticipated white collar exemption rules. Here is what employers need to know:
Beginning on December 1, 2016, the salary requirements for exempt status will be $913 per week or $47,476 per year. How did the DOL arrive at that number? The amount represents the 40th percentile of earnings for full time workers in the lowest income region of the country (the South) as reflected in the census. For more than 10 years, the salary level for white collar overtime exemptions was $455 per week, so this increase represents a significant change. As a practical matter, this means that any employee that makes less than $47,476 is automatically eligible for overtime. So, employers can increase the salary to this minimum threshold or make sure that an employee works no more than 40 hours per week. Paying overtime is an option as well of course!
Interestingly, the new rule allows employers to count nondiscretionary bonuses, incentive payments, and commissions to satisfy this salary requirement; however, such compensation cannot make up more than 10% of salary threshold to meet the salary requirements. The rule increases the minimum salary level automatically every three years in accordance with census data with the first increase happening in January 2020. Another change is that the salary level for highly compensated employees changed from $100,000 to $134,000. These rules are not as sweeping as expected. There were no changes to the duties tests concerning white collar exemptions (executive, administrative, professional, outside sales and computer professional).
Tip: Note that the DOL will not enforce these new rules until 2019; however, as a practical matter, employees can still bring suit over the issue whether the DOL is enforcing it or not, so it’s a good idea to be in compliance by December 1st. In addition, employers should audit its exempt employees and make sure all timekeeping policies are in line with the new rules. Finally, three years comes very quickly. Putting in processes and procedures now will make the periodic salary review easier down the road.