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Employment Law Update

DOL Announces Final Rule Doubling Salary Threshold for Exempt Employees

May 2016

DOL Announces Final Rule Doubling Salary Threshold for Exempt Employees

In our November 2015 Employment Law Update, we discussed the Department of Labor’s proposed rule changing the requirements of the "white collar" exemptions to the overtime requirements of the Fair Labor Standards Act. Whether an employee is exempt depends on the nature of the employee’s duties and the amount paid (the “salary test.”). On Tuesday, May 17, 2016, the DOL announced the issuance of the final version of that rule.  The new rule:

  • more than doubles the salary test from $23,660 to $47,476;
  • raises the total annual compensation requirement for highly compensated employees – subject to a minimal duties test – to $134,004;
  • allows employers to use nondiscretionary bonuses and incentive payments, including commissions, to satisfy up to 10% of the salary requirement;
  • creates a mechanism that will automatically adjust these thresholds every three years.

Although the Department considered adopting the California model, which would require a worker to spend at least 50% of his or her time on exempt duties to qualify for an exemption, the final rule makes no changes to the duties requirement. 

The final rule becomes effective on December 1, 2016. It will affect millions of employees and have a severe impact on employers, who must choose between increasing salaries, paying overtime to formerly exempt employees, reclassifying employees, limiting hours of work and/or reducing benefits. Employers will have to be very careful in reconciling their business needs with the requirements of the final rule, and you should seek the advice of counsel to assist you in complying with the rule and minimizing the risk of a FLSA violation. A member of the Employment Law Group at Trenam Law would be happy to advise you on these issues.

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