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On May 19, 2016, the Department of Labor (“DOL”) issued its final rule regarding the Fair Labor Standards Act (“FLSA”). This ruling will have nationwide sweeping implications for most private and public employers as it pertains to who is exempt from the overtime pay requirements under federal law. The DOL invited interested parties to submit written comments to the proposed rule changes through September 4, 2015. The DOL has now adopted its final rules, which become effective December 1, 2016, which are as follows:
● The salary basis test for an employee to be exempt from the FLSA increased from $455/week or $23,660 annually, to $913/week or $47,476 annually. However, in order to prevent the salary level requirements from again becoming outdated and ineffective, the DOL is establishing mechanisms for automatically updating the salary and compensation levels every three (3) years to maintain them at the levels set in the new rule. Thus, employers will need to plan for these future changes as they set compensation levels.
● Highly compensated employees who earn more than $134,004 annually and who customarily engage and regularly perform any one or more of the exempt duties or responsibilities of an executive, administrative or professional employee as defined under the FLSA, are exempt from the overtime requirements without satisfying the full duties test.
● Employers will be able to use non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent (10%) of the standard salary level, provided these payments are made on a quarterly or more frequent basis.
Although there were no changes to the description of duties and responsibilities evaluated in determining whether an employee is exempt, employers will need to review employee compensation plans to ensure that their once-classified exempt employees either remain so (by increasing salaries) or are moved into a non-exempt classification; thus making them eligible for overtime pay. Along with the change in employee compensation, employers should review current job descriptions for those employees currently classified as exempt and make appropriate modifications, if necessary.
The DOL has stated that these changes will result in the reclassification of over 4.2 million employees to non-exempt status which may result in increased overtime requiring employers to re-evaluate staffing levels and compensation plans to address overtime costs. Failure to properly classify employees can lead to fines and penalties under the FLSA as well as back pay (up to 2 years and 3 years if the misclassification was “willful”) to those employees who were misclassified and the employee’s attorneys fees.
Kotz Sangster’s employment law attorneys are available to help you better understand the proposed rules and learn how you can implement best practices for your business in order to remain compliant, avoid wage and hour mistakes, and manage your labor costs.