In a previous blog post dated April 19, 2016, we provided a heads-up that the United States Department of Labor (DOL) had proposed regulations that would modify certain provisions of the Fair Labor Standards Act (FLSA), the most significant of which related to the proposed increased minimum salary thresholds to classify an employee as exempt.
This message serves as an update to that post as a final ruling has been made and the new rules will be effective on December 1, 2016. Here is a brief summary of the final rulings:
New Minimum Salary to Qualify for Administrative, Professional & Executive Exemptions: Increases from $455 weekly ($23,660 annually) to $913 per week ($47,476 annually). This is lower than originally proposed but still a significant increase (+101%).
New Minimum Salary for Highly Compensated Employee Exemption: Increases from $100,000 per year to $134,004 per year. This is more that originally proposed.
Bonus Inclusion: For the first time, employers may use non-discretionary bonuses, incentive payments and commissions to satisfy up to 10 percent of the minimum salary requirement for the administrative, professional, and executive exemptions, as long as these forms of compensation are paid at least quarterly. There are some additional details in that ruling so if this applies to you dig in a bit further or contact Third Road Management for additional information.
Automatic Adjustments: As part of the ruling, every 3 years the Department of Labor, using figures from the Census Bureau and Bureau of Labor Statistics, will adjust the minimum salary requirement for the administrative, professional, and executive exemptions to keep it at the 40th percentile of full-time salaried workers in the lowest-wage region in the United States. Further, the highly compensated employee exemption salary will be kept at the 90th percentile of full-time salaried workers nationally. The first adjustment will be on January 1, 2020 and the Department of Labor stated that they will send out notices 150 days in advance of changes taking effect.
So, What Do You Need to Do?
- Perform an audit of your employees classifications and compensation structure. This would be a great time to review classifications and make sure that all of your employees are properly classified under the FLSA.
- Assess how these proposed modifications could impact your organization financially and prepare accordingly.
- Talk to your employees and hear from them. What are their concerns to any changes that could be made? Always remember, weigh-in produces buy-in.
- You may need to reclassify current exempt employees as non-exempt and pay them overtime for hours worked in excess of 40 in any given week.
- Take this opportunity to assess how your compensation structure is set-up to attract and retain talented employees in a fair and consistent manner.
If you need assistance navigating these changes, or if you are interested in discussing Third Road Management’s Outsourced Human Resource services, please contact us at firstname.lastname@example.org.