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Labor & Hr Committee Update

May 18, 2016
Frank Kerbein

Fair Labor Standards Act Final Rule Released

Today the US Department of Labor (DOL) released the final rule regarding the salary level for overtime exemptions.  The rule takes effect December 1, 2016. Information from the Wage and Hours Division of the DOL can be found here.

As you know, the Fair Labor Standards Act (FLSA) requires that most employees in the United States be paid at least the federal minimum wage for all hours worked and overtime pay at time and one-half the regular rate of pay for all hours worked over 40 hours in a workweek. However, Section 13(a)(1) of the FLSA provides an exemption from both minimum wage and overtime pay for employees employed as bona fide executive, administrative, professional, outside sales and certain computer employees.

To qualify for exemption, employees generally must pass certain tests regarding their job duties and be paid on a salary basis, and at a salary level of not less than $455 per week. Job titles do not determine exempt status. In order for an employee to be exempt from the overtime provisions of the law, the employee must pass all three tests. (Note: NYS has its own salary level requirements for executive and administrative professionals. That level is currently $675 per week effective 12/31/2015.)

Key provisions of the new rule are:

  1. Sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South. This means the new salary level effective December 1, 2016 will be $913 per week; or $47,476 per year;
  2. 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); and
  3. 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.

Additionally, the Final Rule 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.
The effective date of the final rule is December 1, 2016. The initial increases to the standard salary level (from $455 to $913 per week) and HCE total annual compensation requirement (from $100,000 to $134,004 per year) will be effective on that date. Future automatic updates to those thresholds will occur every three years, beginning on January 1, 2020.

In light of the new final rule, employers need to review all the positions in their organization currently considered “exempt” and paid less than the new salary lever of $913 per week/$47,476 per year. Employers can either increase an exempt worker’s salary so the worker remains exempt, or reclassify him or her as nonexempt.

In response to the proposed rule, The Protecting Worker Advancement and Opportunity Act was introduced March 17th by Sen. Tim Scott, R-S.C., and Rep. Tim Walberg, R-Mich. The bill would require the Department of Labor to hold off on the regulation until it conducts an economic analysis on the rule’s impact on small businesses, nonprofit organizations and public employees. Obviously, any action by Congress would require President Obama’s signature.

As part of the next Business Council Labor/Human Resources webinar, we will discuss the new rule and compliance strategies. The next webinar is scheduled for Wednesday, June 29th at 11:00 a.m. Information and on-line registration for this webinar can be found here.

In the meantime, if you have any questions regarding the new rule or compliance strategies, please contact me.

New Poster: Family and Medical Leave Act

If you are an employer of 50 or more, you are, most likely, covered by the provisions of the Family and Medical Leave Act (FMLA). All covered employers are required to display and keep displayed a poster prepared by the Department of Labor summarizing the major provisions of the Act and telling employees how to file a complaint. The poster must be displayed in a conspicuous place where employees and applicants for employment can see it. A poster must be displayed at all locations even if there are no eligible employees. The poster was revised in April 2016. The new Family and Medical Leave Act poster is available here.