DOL's Final Rule Doubles Minimum Salary Required for White Collar Exemptions Under the FLSA | Practical Law

DOL's Final Rule Doubles Minimum Salary Required for White Collar Exemptions Under the FLSA | Practical Law

On May 18, 2016, the Department of Labor (DOL) announced it will publish a Final Rule updating the overtime exemption regulations of the Fair Labor Standards Act (FLSA). The final rule doubles, from $455 to $913 per week (or $23,660 to $47,476 annually), the minimum salary required for exemption of executive, administrative, and professional employees, as well as the minimum compensation level for the highly compensated employee exemption. The Final Rule will be available at the Federal Register site and becomes effective December 1, 2016.

DOL's Final Rule Doubles Minimum Salary Required for White Collar Exemptions Under the FLSA

by Practical Law Labor & Employment
Law stated as of 24 Sep 2019 • USA (National/Federal)
On May 18, 2016, the Department of Labor (DOL) announced it will publish a Final Rule updating the overtime exemption regulations of the Fair Labor Standards Act (FLSA). The final rule doubles, from $455 to $913 per week (or $23,660 to $47,476 annually), the minimum salary required for exemption of executive, administrative, and professional employees, as well as the minimum compensation level for the highly compensated employee exemption. The Final Rule will be available at the Federal Register site and becomes effective December 1, 2016.
On May 18, 2016, the DOL announced that it will publish its Final Rule, increasing the minimum salary required to exempt executive, administrative, and professional employees from the FLSA's minimum wage and overtime pay protections. The rule also increases the minimum compensation level required to exempt highly compensated employees (HCEs).

Background

In 2014, President Obama directed the DOL to update the minimum salary threshold required for exemption to account for inflation since the threshold was last updated in 2004. The DOL published a notice of proposed rulemaking on July 6, 2015, and received more than 270,000 public comments. For more information, see Legal Updates:

Final Rule

The Final Rule, to be published in the Federal Register on May 23, 2016 and take effect on December 1, 2016, primarily focuses on increasing the minimum salary required for exemption under the FLSA. The DOL estimates the change will extend the right to overtime pay to approximately 4.2 million currently exempt workers.
Specifically, the Final Rule:
  • Sets the minimum salary level for exempt executive, administrative, and professional employees (also known as EAP or white collar exemptions) at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region (currently the South). This results in an increase from:
    • $455 to $913 per week; or
    • $23,660 to $47,476 annually.
  • Sets the minimum annual compensation level for exempt highly compensated employees at the 90th percentile of full-time salaried workers nationally. This results in an increase from $100,000 to $134,004 annually. The total annual compensation of HCEs still must include a minimum weekly salary paid on a salary basis. That minimum weekly salary increases from $455 to $913 under the new rule.
  • Establishes a mechanism to automatically update the salary and compensation levels every three years to:
    • maintain the levels at the above percentiles; and
    • ensure they continue to provide effective tests for exemption.
  • Amends the salary basis test to allow employers to satisfy up to 10% of the new minimum salary level using:
    • nondiscretionary bonuses; and
    • incentive payments (including commissions).
    For employers to apply nondiscretionary bonuses and incentive payments toward a portion of the minimum salary (capped at 10% of the minimum required salary amount), those payments must be paid at least quarterly. Employers may be permitted to make a "catch-up" payment.
    Employers may not credit nondiscretionary bonuses or incentive payments toward the minimum salary required for exempt HCEs because employers are already permitted to satisfy a portion of the HCEs total annual compensation requirement with those payments.
  • Updates the special "base rate" for employees in the motion picture industry to $1,397 per week.
  • Updates the special salary level for employees in American Samoa to $767 per week.
The initial increases to the minimum salary and total annual compensation levels become effective on December 1, 2016. Future automatic updates will occur every three years, beginning on January 1, 2020. All updated rates will be published in the Federal Register at least 150 days before the effective date, and will appear on the DOL's website.
The Final Rule makes no changes to the duties tests.
The DOL has released technical guidance documents and other compliance assistance materials on its website to assist employers with compliance. The materials include:

Practical Implications

The DOL's final rule creates a bright-line test for most overtime exemptions. Employers have until December 1, 2016 to reclassify any exempt employees who no longer satisfy the new salary threshold. The exempt status of those employees who do meet the minimum salary requirement is still contingent on satisfaction of the duties test, which remains unchanged under the final rule.
Update: On November 22, 2016, the US District Court for the Eastern District of Texas issued a nationwide preliminary injunction enjoining implementation and enforcement of the DOL's final rule. The US Court of Appeals for the Fifth Circuit granted the DOL's request for expedited briefing of its appeal, and scheduled oral argument to occur after briefing closes on January 31, 2017. For these and future updates on the DOL's final rule, see Practice Note, Latest Developments: DOL's Final Rule Increasing the Minimum Salary for EAP Exemptions Under the FLSA.
Update: On September 24, 2019, the DOL announced its final overtime rule, updating minimum salary and compensation levels for certain exemptions effective January 1, 2020. The agency also formally rescinded its 2016 final overtime rule, invalidated by a federal district court before its December 1, 2016 effective date. For more information on the DOL's 2016 final rule, subsequent litigation, and the 2019 rulemaking, see Practice Note, Latest Developments: DOL Rulemaking to Increase the Minimum Salary for White Collar Exemptions Under the FLSA.