The U.S. Department of Labor just released final rules updating the overtime regulations of the Fair Labor Standards Act (FLSA) that will significantly broaden the scope of employees eligible for overtime pay when the rules go into effect December 1, 2016: DOL Announcement.

Employers that are governed by the FLSA are required to classify their employees as either “exempt” or “nonexempt” for purposes of overtime pay. Most employees are “nonexempt,” and therefore entitled to overtime pay for hours worked over 40 in a workweek. However, the duties and salaries of some employees can qualify the employee for one of the FLSA exemptions for overtime, which means that these “exempt” employees will not receive overtime pay for hours worked over 40 in a workweek. The new FLSA rules impact the qualifications for the FLSA’s “white collar” overtime exemptions for executives, administrators, professionals and highly compensated employees by raising the threshold salary requirements.

Currently, salaried workers falling into the executive, administrator, and professional exemptions must earn at least $23,660 annually (or $455 per week) to qualify for an exempt classification. The new rules nearly double this salary threshold to $47,476 annually (or $913 per week). In general, this means that employees classified as exempt under the current law who earn above $23,660 but below $47,476 will lose their exempt status as of December 1, 2016. The new rules also raise the salary threshold for the highly compensated employee exemption from $100,000 per year to $134,004 a year. The last time the DOL changed the salary threshold for these regulations was twelve years ago, in 2004.

Additionally, while there is no change to the duties test for the white collar exemptions, the new rule will allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the new salary levels. More detailed information about all of the changes the new rules will bring to the overtime compliance procedures can be found on the DOL website here.

What are an employer’s options for employees losing their current exempt status? Several. If the employee rarely, if ever, works more than 40 hours in a workweek, one option is to let the employee convert to non-exempt status given the lack of impact as a practical matter. Of course, such employees must still be treated as all other non-exempt employees as far as recording worked hours and receiving overtime pay for all overtime hours worked, even if unexpected. For those employees who regularly work in excess of 40 hours per workweek, employers can maintain the exempt status by raising the salary to meet the new threshold levels. Other options for employees who regularly work more than 40 hours in a workweek that will lose their exempt status include redistributing workloads to other employees, changing workweek schedules to reduce overtime and reducing base pay so that the total amount of regular and overtime wages will remain largely the same.

The upcoming rule changes provide a good opportunity for employers to revisit their exempt classifications in all respects, including the new threshold salary levels. For any additional information regarding overtime pay and exemption requirements, please contact Danielle Wiletsky at dwiletsky@wsmtlaw.com