10/17/2016

By: Brittany Flaherty Theis

The Fair Labor Standards Act (“FLSA”) is a federal statute that establishes the national minimum for wage and hour rules. On May 18, 2016, President Obama and Secretary Perez announced that the Department of Labor published its final regulations updating the FLSA’s Part 541 overtime regulations (the “Final Overtime Rule”), which include the “White Collar” or Executive, Administrative, and Professional (“EAP”) Exemptions. The Final Overtime Rule focuses primarily on updating the salary level for those exemptions, as well as the salary level for highly compensated employees.

To qualify for a White Collar Exemption, most employees must regularly receive a predetermined amount of compensation for each pay period. For the most part, exempt employees may not be paid by the hour, and their pay must not be subject to reduction because of variations in the quality or quantity of the work performed. This is known as the salary basis component of the exemption.

Under the White Collar Exemption, an employee’s salary must be at least $455 per week each pay period, and the pay period must be at least a week long. This is known as the salary level component of the exemption, and is one of the provisions that were updated by the Final Overtime Rule. Beginning on December 1, 2016, the new salary threshold will be $913 per week. The salary level is subject to automatic updates every three years, beginning on January 1, 2020.

Under the provisions of the Final Overtime Rule, employers will be able to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary level for the White Collar Exemption if certain conditions are met. Nondiscretionary bonuses would include retention bonuses or those awarded for meeting set production goals.

The Final Overtime Rule did not impact the duties test, which is the third component of the White Collar Exemption.

There is also an exemption for Highly Compensated Employees in the FLSA. The salary level requirements are set higher than the White Collar Exemptions, but the duty requirements are less particular. The current salary level minimum for Highly Compensated Employees is $100,000. Effective December 1, 2016, the minimum will be increased to $134,004.

For Highly Compensated Employees, employers cannot credit nondiscretionary bonuses or incentives toward the standard salary level weekly requirement and must still meet the $913 weekly salary minimum. (This means that they cannot be paid only 90% of the $913 as salary.) That Final Rule change is applicable only to EAP employees.

On July 14, 2016, the Education and the Workforce Committee of the United States House of Representatives introduced H.R. 5813 – the Overtime Reform and Enhancement Act. The proposed legislation would revise the salary level set by the Final Rule and nullify the automatic updates imposed by the Final Rule. Please note that as of October 17, 2016, this was only proposed legislation. On September 20, 2016, two lawsuits were filed to challenge the Final Overtime Rule. Those lawsuits are still pending. The Final Overtime Rule is still the law and scheduled to go into effect.

In October 2016, Whitt Law Attorney Brittany Flaherty Theis is scheduled to give multiple presentations on the new FLSA overtime regulations. Please contact Ms. Theis if you have questions about the Final Overtime Rule and how it might impact your organization.

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