After what seems to employers like a near eternity of waiting, the DOL issued its final overtime rules today. There weren’t any surprises. With an effective date of December 1, 2016, the main changes to the rules which affect white collar exemptions and had not changed since 2004, are as follows:
1. Salary Threshold.
As employers know, the test to determine white collar exemptions has two parts: the salary basis test and the duties test. The new rules increase the minimum salary to meet the first part of the test to $47,476 annually or $913 a week. This is not as high as the approximately $52,000 that was included in the recommended rules. Nevertheless, it is about double what the current minimum salary is required to meet the salary basis test for exempt status. Some estimate that the new threshold will result in about 30% more of the workforce becoming eligible for overtime.
2. Duties Test.
Fortunately for small employers especially, the DOL made no changes to the duties test, which is the second prong of the evaluation of white collar exempt status. The rule will still require that the primary duties of an exempt employee meet the definition of professional, executive or administrative employees, measured by importance and not by amount of time that the employee performs them. Although no specific recommendation was made to change this part of the test, many feared that the DOL would implement a new rule requiring exempt employees to perform the “exempt” duties 50% or more of their work time. This would have significantly affected smaller employers where managers and supervisors are often called upon to do the same work as their subordinates.
3. Highly Compensated Exemption.
Perhaps because it affects relatively few in the workforce, little attention is given to the highly compensated exemption. Currently, employees are deemed exempt under the FLSA overtime rules if they customarily perform t least one defined in the primary duties of executive, professional or administrative exemptions; that their work is office or non-manual labor and they are paid $100,000 or more annually. The threshold salary for highly compensated worker exemption will rise to $134,000 under the amended rules.
Although employers have long anticipated these changes, they have only six months to prepare for final implementation. Careful consideration should be given to how to handle employees who will lose exempt status in December.