This week, the U.S. Department of Labor released its much-anticipated Final
Rule revising the “white collar” overtime exemptions. The Final Rule, which goes
into effect on December 1, 2016, could make millions of employees who are now
salaried eligible for overtime because they will no longer qualify as “exempt” from
the overtime pay requirements of the Fair Labor Standards Act (“FLSA”).
Among other changes, the Final Rule more than doubles the current minimum
“salary basis” threshold of $23,660 ($455 per week) and sets a minimum annual
salary of $47,476 ($913 per week) for the most common white collar overtime
exemptions (e.g., executive, administrative, and professional) under the FLSA.
Additionally, the Final Rule changes the total annual compensation requirement
for highly-compensated employees subject to a minimal duties test to $134,004
and allows employers to use nondiscretionary bonuses and incentive payments
provided on a quarterly (or more frequent) basis to satisfy up to ten percent of
the new standard salary levels. Further, the Final Rule requires that the salary
threshold for the white collar exemption be automatically updated every three
years, beginning on January 1, 2020, to account for inflation. The new salary
threshold has no impact on workers paid on an hourly basis.
It is important to recognize the Final Rule does not change the existing “duties
test.” An employee’s duties must also be considered in determining whether the
employee is exempt from the FLSA’s overtime requirements. Salaried workers
above the new threshold, who do not primarily perform executive, administrative,
or professional duties, as defined by the Department of Labor’s existing
regulations, do not satisfy the “duties” test, and thus are not eligible for the white
collar overtime exemption.
The Department of Labor also has issued specific guidance on how the Final Rule
will affect nonprofits, higher education, and state and local governmental
entities.
Once published, Congress will have 60 days under the Congressional Review Act
to evaluate and potentially disapprove the Final Rule, though President Obama
would likely veto any attempt by Congress to block the Final Rule. Regardless,
the time to start planning is now:

Employers should first audit the status of their current employees by
identifying employees who are classified as exempt and reviewing the
“duties” of those employees to ensure they are properly classified.

Employers should then identify those exempt employees making less
than the new salary threshold ($913 per week).

For workers who clearly meet the duties test, employers may choose to
raise these workers’ salaries to meet the new threshold and maintain
their exempt status.
If a substantial wage increase is not feasible, the law does not require that newly
overtime-eligible workers be converted to hourly pay status, although employers
may elect to do so. Instead:

Employers may limit or preclude salaried workers’ overtime by distributing
workloads or adjusting staffing levels.

Employers may continue to pay newly overtime eligible employees a salary
and pay overtime for hours in excess of 40 per week. However, this
approach would increase the administrative burden of calculating the
employee’s appropriate “regular rate.”

Employers may also adjust the amount of an employee’s earnings to
reallocate earnings between regular rate of pay and overtime
compensation. This method may work for employees who work a relatively
small amount of predictable overtime.
With any response, employers should also consider adopting time-tracking
technologies and policies, as the time worked by these formerly exempt
employees must now be tracked and maintained like other hourly employees.
For additional information on how the Final Rule affects your workforce and
strategies for dealing with the new regulation, please contact a member of Cline
Williams’ Labor and Employment Section:
David R. Buntain
Jill G. Jensen
John C. Hewitt
Tara A. Stingley
Susan K. Sapp
Jason R. Yungtum Henry L. Wiedrich Jody N. Duvall
Lily A. Carr
Kara J. Ronnau