U.S. Department of Labor Issues Final Rule Boosting Minimum Salary for Overtime Exemptions
On May 18, 2016, President Obama and U.S. Department of Labor Secretary Thomas Perez announced the issuance of the Final Rule updating the salary requirements of the Fair Labor Standards Act’s overtime exemptions. The increase in salary standard, which will go into effect on Dec. 1, 2016, boosts the minimum salary level for exempt status from $455 per week to $913 per week, or from $23,660 per year to $47,476 per year (reduced from the initially proposed figure of $50,440 per year). In addition, the Final Rule raises the requirement for the highly compensated employee exemption from $100,000 to $134,004 per year. 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 Final Rule also establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the percentiles used to determine the current increases. The Department of Labor announced that the increased salary levels will extend overtime pay protections to over 4 million workers within the first year of implementation. For further information please check the U.S. Department of Labor’s summary of the Final Rule.
PLEASE NOTE: For employers who wish to maintain the level of a previously exempt employee’s total annual compensation, but not wish to boost the salary to the minimum required to maintain the exemption, there are steps which may be taken with regard to hourly rates and bonuses which can accomplish this objective while at the same time paying overtime pay.