Lora M. Jennings, Attorney

The Department of Labor has now issued the Final Rule defining the exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees under the Fair Labor Standards Act.  

Beginning December 1, 2016, these exemptions will require that an employee be paid $913 per week, or $47,476 annually (up from $455 per week, $23,660 annually) to be exempt from overtime pay requirements. The Department of Labor expects this change alone will extend overtime pay protections to over 4 million workers. In addition, the salary requirement will be updated every three years. Employers are permitted to use nondiscretionary and incentive payments, including commissions, to satisfy up to 10% of the new standard salary level. 

For employers relying on the exemption for “highly compensated” employees, the Final Rule increases the total annual compensation requirement for these employees (HCE) to $134,004 (up from $100,000). To satisfy the test for this exemption, the employee must be paid at least $913 per week, however employers are not permitted to use nondiscretionary incentive payments towards this weekly pay requirement.  

Employers should take action now to determine which employees will meet the new salary requirements and ensure compliance with the Final Rule well in advance of the December 1 deadline.  Employees who do not meet the new salary threshold will need to be reclassified as non-exempt. Employers would be well-served to communicate changes in exemption classifications to employees, and review overtime practices and policies with employees including time-keeping procedures. Finally, because the Final Rule is expected to result in increased scrutiny of employers’ pay practices and classifications, employers should consult with counsel soon to audit their current wage and hour policies and procedures for compliance.