DOL Updates Salary and Compensation Levels Required for FLSA ‘White Collar’ Exemption

Changes Effective December 1, 2016

The U.S. Department of Labor (DOL) has released a final rule, effective December 1, 2016, to update the regulations governing which executive, administrative, and professional employees (referred to as “EAP” or “white collar” workers) are entitled to the federal Fair Labor Standards Act’s (FLSA) minimum wage and overtime pay protections.

Current Rules
The FLSA provides an exemption from both minimum wage and overtime pay for employees employed as bona fide executive, administrative, and professional employees (among others). The current regulations implementing the exemption have generally required each of three tests to be met for the exemption to apply:

1. The employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the “salary basis test”);

2. The amount of salary paid must meet a minimum specified amount, the current level for which is not less than $455 per week, or $23,660 per year (the “salary level test”); and

3. The employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations (the “duties test”).

“Highly-compensated employees” (HCEs) who are paid total annual compensation of $100,000 or more and meet certain other conditions are also deemed exempt.

Note: Job titles never determine exempt status. Receiving a particular salary, alone, does not indicate that an employee is exempt. Rather, in order for a white collar exemption to apply, an employee’s specific job duties and earnings must meet all of the applicable requirements provided in the regulations.

Key Changes
A comparison table of the current regulations, proposed rule, and final rule has been provided by the DOL. Among other things, the final rule:

• Sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region (rather than on national data as originally proposed), resulting in a salary level of $913 per week or $47,476 annually for a full-year worker;

• Sets the HCE total annual compensation level equal to the 90th percentile of earnings of full-time salaried workers nationally, consistent with the DOL’s original proposal ($134,004 annually);

• Establishes a mechanism for automatically updating the salary and compensation levels every 3 years, beginning on January 1, 2020 (rather than annual updates as originally proposed); and

• Amends the regulations to allow employers to use nondiscretionary bonuses, incentives, and commissions to satisfy up to 10% of the new standard salary level, so long as employers pay those amounts on a quarterly or more frequent basis.

The DOL is not making any changes to the current duties tests. For more information, please refer to the DOL’s website on the final rule, which offers employers comprehensive resources including fact sheets, Q&As, guidance for businesses, and more.