Significant Change Coming in Fair Labor Standards Act (FLSA)

The U.S. Department of Labor (DOL) has released a final rule, effective December 1, 2016, updating the regulations governing which executive, administrative, and professional employees (“white collar” workers) are entitled to the minimum wage and overtime pay protections of the federal Fair Labor Standards Act(FLSA).

In the coming weeks our team will be analyzing this information for our clients and are happy to provide guidance with your particular employee base to ensure you remain compliant after the ruling goes into effect on 12/1/16.  Below, are some of the key issues you need to be aware of.  If you have specific questions in the meantime, please feel free to connect  with our team.

Current Rules
The current federal rules provide an exemption from both the FLSA minimum wage and overtime pay requirements for bona fide executive, administrative, and professional employees who meet certain tests regarding their job duties and who are paid on a salary basis at not less than $455 per week ($23,660 per year). “Highly-compensated employees” (HCEs) who are paid total annual compensation of $100,000 or more and meet certain other conditions are also deemed exempt.

Key Changes  
The final rule focuses primarily on updating the salary and compensation levels needed for executive, administrative, and professional workers to be exempt. In particular, the final rule:

• Raises the salary threshold from $455 a week to $913 per week (or $47,476 annually) for a full-year worker (equal to the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region);
• Sets the highly-compensated employee (HCE) total annual compensation level equal to the 90th percentile of earnings of full-time salaried workers nationally ($134,004 annually);
• Establishes a mechanism for automatically updating the salary and compensation levels every 3 years, beginning on January 1, 2020; and
• Amends the regulations to allow employers to use nondiscretionary bonuses, incentives, and commissions to satisfy up to 10% of the new standard salary level, so long as employers pay those amounts on a quarterly or more frequent basis.

Note: Job titles never determine exempt status. Receiving a particular salary, alone, does not indicate that an employee is exempt. Rather, in order for a white collar exemption to apply, an employee’s specific job duties and earnings must meet all of the applicable requirements provided in the regulations. The DOL is not making any changes to the current job duties tests. Keep in mind that when both the FLSA and a state law apply, the employee is entitled to the most favorable provisions of each law.

For more information, please refer to the DOL’s website on the final rule, which offers employers comprehensive resources including fact sheets, a comparison table of the current and final rules, Q&As, guidance for businesses, and more. The final rules will be published in the Federal Register soon, and therefore what has been published to date is not considered “final”, but it is anticipated whatever changes made when published will be minor.

For additional details or questions, connect with the HR experts at Fahrenheit at info@fahrenheitadvisors.com or if you are an existing client, please contact your Fahrenheit Team membervwith any questions.

Tom Wimer leads the HR consulting and fractional management practice at FahrenheitHR. During his 30 years as a human resources (HR) professional, he has counseled some of the world’s most respected companies, top federal government agencies and non-profit organizations on a variety of issues, including human capital management, organizational effectiveness, and learning solutions.