Prepare Now for December Changes to White Collar Exemption Rule

The Department of Labor (DOL) recently announced its final change to overtime rules raising the minimum salary for white collar exemptions to take effect on December 1, 2016, nearly 18 months after issuing its Notice of Proposed Rulemaking (NPRM) in July of 2015. Most significantly, final rule will raise the salary threshold from $23,660 to $47,476. The significance of the change could potentially impact more than 4 million workers by the end of the first year of implementation by automatically extending overtime protections to a much larger segment of the workforce and thereby increasing their take home pay.

“We want our clients to be aware of their responsibilities to make the necessary adjustments in advance of December, whether they choose to raise salaried employees over the new threshold or change them to non-exempt,” said John Kasperek, Jr., President of John Kasperek Co., Inc. “Unpaid overtime and penalties can be significant to employers who incorrectly classify employees, so it’s important to understand exemptions and how to apply them.”

When an employee is exempt, it means that the employee meets a specific definition under the law and is not entitled to overtime and other possible benefits extended to non-exempt employees.Some employees are exempt from the overtime pay provisions, some from both the minimum wage and overtime pay provisions and some from the child labor provisions of the Fair Labor Standards Act (FLSA).

The primary advantages of classifying employees as exempt are that employers don’t have to track their hours or pay them overtime, no matter how many hours they work. Under FLSA, employers must pay non-exempt employees one-and-a-half times their regular rate of pay when they work more than 40 hours in a week.

The FLSA contains many exemptions, but the most commonly applied are the white-collar exemptions for administrative, executive, and professional employees, computer professionals, and outside sales employees.

Other provisions to the DOL’s final rule include:

• Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004)

• Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption

• Amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level