Review of the DOL's Final Rule Updating the FLSA's White Collar Exemptions
This month we received the Department of Labor’s (“DOL”) final rule updating the overtime regulations under the Fair Labor Standards Act (“FLSA”), 29 U.S.C. 201 et seq
. This comes about a year after President Obama issued a Presidential Memorandum directing Secretary of Labor Thomas Perez to update and modernize the overtime regulations, particularly those pertaining to executive, administrative, and professional employees, which are known as the “white collar” or “EAP” exemptions. Calling the regulations “outdated,” President Obama commented that millions of Americans’ overtime and minimum wage rights were not being protected as intended under the statute. The Memorandum also specifically instructed Secretary Perez to simplify the regulations and make them easier to understand and apply.
The final rule is available here
and will become effective on December 1, 2016. It strengthens overtime protections under the FLSA and is expected to affect over 4 million workers during the first year of implementation. According to the DOL, its goal in revising the overtime regulations was to “effectively distinguish between overtime-eligible white collar employees who Congress intended to be protected by the FLSA’s minimum wage and overtime provisions and bona fide EAP employees whom it intended to exempt” and, further, to “ensure that white collar employees who should receive extra pay for overtime hours will do so and that the test for exemption remains up-to-date so future workers will not be denied the protections that Congress intended to afford them.” To accomplish that goal, the final rule updates the standard salary level and total annual compensation requirements that executive, administrative, and professional employees must meet to be exempt.
The major takeaways from the final rule are as follows. One of the major provisions raises the standard salary level from $23,660 annually ($455 per week) to $47,476 annually ($913 per week). This new threshold reflects the 40th percentile of earnings of full-time salaried workers from the nation’s lowest wage census region (currently, the south). Another major provision raises the total annual compensation requirement for highly compensated employees from $100,000 to $134,004. This new threshold reflects the 90th percentile of full-time salaried workers nationally. The final rule also contains a mechanism to automatically update those thresholds every 3 years. Further, for the first time, employers may use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the new standard salary level.
Critically, the final rule does not change the duties test for executive, administrative, and professional employees.
To aid compliance with the final rule, the DOL issued Guidance for Private Employers on Changes to the White Collar Exemptions in the Overtime Final Rule, available here