DOL’s Final Overtime Rule Is Released
Today, the Obama administration and Secretary of Labor Perez announced the publication of the Department of Labor's final rule updating the overtime regulations under the FLSA. The final rule increases the minimum salary to qualify for the white-collar exemptions from $455 per week to $913 per week ($47,476 annually). This is slightly less than the increase to $50,440 the DOL had earlier proposed. Under the final rule, the minimum salary to qualify for the FLSA's highly compensated employee exemption will rise from $100,000 to $134,004 (higher than had earlier been proposed by the DOL). These salary thresholds are further subject to automatic increases every three years, beginning January 1, 2020.
Notably, under the new rules, employers may use non-discretionary bonuses and incentive payments (including commissions) that are paid quarterly or more frequently to the employee, to satisfy up to 10% of the minimum salary threshold. The new rule further amends the regulations to provide as follows: “If by the last pay period of the quarter the sum of the employee’s weekly salary plus nondiscretionary bonus, incentive, and commission payments received does not equal 13 times the weekly salary amount required by § 541.600(a), the employer may make one final payment sufficient to achieve the required level no later than the next pay period after the end of the quarter. Any such final payment made after the end of the 13-week period may count only toward the prior quarter’s salary amount and not toward the salary amount in the quarter it was paid.”
The effective date of the final rule (when employers must comply with the new salary thresholds for exempt employees) is December 1, 2016.
The final rule does not include any changes to the duties tests, despite the DOL having solicited input on whether such changes should be made.
California employers should note that the new minimum salary threshold for exempt status under the FLSA is now even higher than the exempt salary threshold under California law (currently $41,600, increasing to $43,680 on January 1, 2017). California employers will have to ensure that their exempt employees meet the higher salary threshold under the FLSA, while also meeting California's stricter duties test (which requires an employee to spend more than 50% of his or her time on exempt duties). Additionally, it is not clear whether California will adopt the new federal regulation allowing employers to count non-discretionary bonuses and incentive payments toward satisfying the minimum salary threshold. Currently, there is no such provision under California law. Finally, employers are reminded that California, unlike the FLSA, does not recognize a “highly compensated employee exemption” that allows an employer to treat an employee as exempt based solely on the employee's compensation level and without regard to whether the employee spends more than 50 percent of his or her time on exempt duties.
Employers should review their exempt classifications to ensure that employees meet the new minimum salary threshold. Employers may need to increase salary to retain exempt status or reclassify employees to non-exempt if their salary is below the new threshold.