New Salary Threshold for Exempt Employees

UPDATE: November 22, 2016 – A federal judge has delayed the new overtime rule. At this time it is not known how long the rule will be delayed or if the new rule will be enforced at all in the future.  The minimum salary threshold for exempt employees will remain at $455 per week until further notice.

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The Department of Labor (DOL) has issued the much anticipated final rules regarding overtime for salary employees.

Under the Fair Labor Standards Act (FLSA), the minimum pay for exempt employees is currently $455 per week (or $23,660 per year). Under the new rule, effective December 1, 2016, the minimum pay will increase to $913 per week (or $47,476 per year). The salary threshold will automatically be updated every three years, beginning on January 1, 2020, based on average wage growth.

An added provision of the new rule is the ability for employers to include nondiscretionary bonuses and incentive payments, including commissions, up to 10 percent of gross wages, to meet the minimum salary requirements. For example, if an employee is paid $44,000 base salary and receives a bonus of $4,000 per year (less than 10% of their gross annual salary), they could still be considered exempt under the new rule because their total compensation ($48,000) is higher than the new salary threshold.

Employers have more than six months to prepare for this change, but it is recommended that you review salaries of all exempt employees at this time to make sure you are in compliance by the December 1st effective date. Employers have the following options for those exempt employees who make less than $913 per week:

  1. Change to non-exempt status and pay overtime wages for any hours worked over 40 in a work week
  2. Change to non-exempt status and limit the hours worked by these employees to 40 per week
  3. Increase the employees’ salaries to be above $913 per week

Although there were no changes to the duties tests for executive, administrative or professional employees, it is recommended that you also review the duty tests to make sure your exempt employees are properly classified.

Exemption for Executive Employees: Fact Sheet

Exemption for Administrative Employees: Fact Sheet

Exemption for Professional Employees: Fact Sheet

 

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