Today, the U.S. Department of Labor (DOL) significantly altered Fair Labor Standards Act (FLSA) regulations, requiring all employers to carefully review their classifications of employees as exempt or nonexempt from the FLSA's overtime provisions. The changes will go into effect on December 1, 2016.
Increased Minimum Exempt Salary for Executive, Administrative, and Professional Exemptions
In the most dramatic change, the DOL more than doubled the minimum salary required for employees to qualify for the white collar exemptions under the FLSA. The minimum exempt salary was increased from $455 per week to the 40th percentile of weekly earnings for full-time salaried workers in the lowest wage region of the United States, which is currently $913 per week. This amount will be reviewed every three years to reflect any increases to the 40th percentile of weekly earnings for full-time salaried workers.
What this means practically for employers is that any employees earning less than $913 per week who were previously classified as exempt from the FLSA's overtime provisions will become nonexempt—and eligible for overtime—as of December 1, 2016. Employers can either increase the salaries for these employees, move the employees to nonexempt status paid hourly, or move the employees to nonexempt status but paid on a salary basis. The latter two options require employers to track employees' working time and to pay employees at a premium rate for hours worked in excess of 40 hours in a work week.
Nondiscretionary Commissions and Bonuses Count Towards Salary Basis
Employers may now credit nondiscretionary commissions and bonuses towards up to 10 percent of the minimum exempt salary amount (currently $91.30 per week), provided that these amounts are paid at least quarterly.
Employers should review commission plans to confirm that commissions are paid no less than quarterly. In addition, for employees on the cusp of meeting the salary basis test for an exemption, employers should consider allocating portions of annual bonus payments to quarterly bonuses at a rate not to exceed $91.30 per week.
Increased Minimum Exempt Salary for Highly Compensated Employees
The DOL also increased the minimum salary for employees to qualify for the highly compensated employee exemption from $100,000 to the 90th percentile of annual earnings for full-time salaried workers, which is currently $134,004 per year.
Change Brings Opportunity
Regardless of whether these changes will require an employer to modify its FLSA exemption classifications for particular employees, they should prompt employers to review their FLSA exemption classifications on all bases and to make any changes required to bring their entire organization into compliance. We encourage our clients to take advantage of WSGR's overtime exemption audits, which can be performed electronically and initially require only an employee census spreadsheet. By ensuring the accuracy of employee classifications, our confidential audits can help clients avoid or minimize liability, and can be used affirmatively in litigation as a defense to additional penalties.
Wilson Sonsini Goodrich & Rosati closely follows developments in wage laws. Attorneys in the firm's employment and trade secret litigation practices are available to discuss or review classifications, policies, and related practices for compliance with applicable law. For more information, please contact Marina Tsatalis, Gerard O'Shea, or another member of the firm's employment or trade secret litigation practices.
