New FLSA Rules Examined: Overtime Exemptions, New Salary Requirements

31 May 2016

New FLSA Rules Examined: Overtime Exemptions, New Salary Requirements

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On May 18th, 2016, President Barack Obama Published the Final Rule on Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees.  After months of speculation and thousands of comments submitted by interested parties to the Department of Labor – Wage and Hour Division, the new rules have been set for salaried employees:

  1. Standard salary level for exempt employees will be set at $913 per week; $47,476 annually for a full-year worker. This is more than double the previous level which was $ 23,660 per year ($455 per week).
  2. The total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test is set at $134,004. This increase from $110,000 will affect top wage earners tax liability and investments in retirement funds.
  3. Establishes a mechanism for automatic updates to the salary and compensation levels every three years to maintain current salary levels against economic factors such as inflation and cost of living.
  4. Amends the salary basis test to allow employers to use nondiscretionary bonuses and commissions to satisfy up to 10 percent of the exempt employee salary.

The new rule is expected to affect approximately 4 million white collar workers and is set to go into effect December 1st, 2016.  The new regulations are aimed at boosting sticky wages among America’s middle class.  Several industry lobbyist groups have criticized the move as going “too far, too fast”.  The increase in overtime exemption salary requirements will likely affect industries such as retail, fast-food, nonprofits, and academics.  These industries often rely on salaried management, administrative and other professional employees for less than $40k per year.  Many “exempt” employees often work between 50 and 70 hours per week.

Supporters of the new rules cite that employees making below the national mean in salaried wages (40th percentile, according to 2010 US Census data), will benefit one or more of these three ways:

  1. Employees will see an increase in salary
  2. Employees who were previously exempt will now be hourly and entitled to overtime pay (150% of hourly rate)
  3. Employees will have a better understanding if their position has been misclassified as exempt.

Misclassification of exempt employee status has been a lingering problem for the Department of Labor for the past decade.  With changing employment organization, understanding complex theories of Joint Employment, Independent Contractor status, and Exemption status has daunted employers, employees and Employment Attorneys.  The new rules being put forth should eliminate at least some of these misclassification errors and provide statutory clarity for many more.

Some negative effects that may be incurred by this high increase are reduction in hours of operation by small businesses, cuts to schedule flexibility and benefits to low salary employees and nonprofit organizations may be forced to cut services to its clients.

If you are an employer or employee concerned about the effects of the New Rule change, it would be wise to contact an experienced attorney who specializes in Employment & Labor law.  The Law Office of Massey & Duffy, PLLC has dedicated attorneys who have represented hundreds of employees and employers in matters involving the Fair Labor and Standards Act (FLSA), Worker’s Compensation, The Occupational Safety and Health (OSH) Act, the Family & Medical Leave Act (FMLA) and The Employee Retirement Income Security Act (ERISA).  Our attorneys have the experience and dedication to represent you in both federal and Florida state courts and have a long history of positive results.  Call (352) 505-8900 to schedule a Free Consultation today!

About the Author:

Massey & Duffy has existed since October, 2003. We focus exclusively on civil litigation, including wrongful death, overtime cases, car and trucking accidents, insurance claims, breach of contract, general employment law, and serious personal injury lawsuits.