Guidance Provides Options for Compliance
The U.S. Department of Labor (DOL) has released guidance on its final overtime rule to help private sector employers evaluate current practices and transition to the rule’s requirements.
The DOL’s final rule, effective December 1, 2016, updates 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). The rule focuses primarily on updating the salary and compensation levels needed for such 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;
- Sets the highly-compensated employee (HCE) total annual compensation level equal to $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: When both the FLSA and a state law apply, the employee is entitled to the most favorable provisions of each law.
Among other things, the DOL’s guidance details some of the options employers may exercise in determining how to comply with the final rule. Employers have certain options for responding to the changes to the salary level, and the DOL does not dictate or recommend any method. Such options include:
- Providing pay raises that increase workers’ salaries to the new threshold;
- Spreading employment by reducing or eliminating work hours of individual employees working over 40 hours per week for which no overtime is being paid; or
- Paying overtime.
Note: The rule does not require employers to convert a salaried worker making less than the new salary threshold to hourly status; employers can pay non-exempt employees on a salary basis and pay overtime for hours worked beyond 40 in a week.