New DOL Rule Increases Minimum Salary Requirements for Exempt Employees Starting 12/01/16

12/01/16: This Rule is currently on hold, per court order. Please read the latest article for news updates on this topic.

On May 23, 2016, the Department of Labor announced a new, final rule that will take effect on December 1, 2016. To the relief of employers, the new rule does not make any changes to the criteria for classifying employees as exempt. Employers can continue to classify employees as exempt or non-exempt under the same duties tests and criteria they used in the past. However, the principal change comes in the form of several heightened minimum salary requirements.

The DOL estimates that in the first year as many as 4.2 million workers would either need to: (1) be reclassified as non-exempt and paid overtime whenever they work more than 40 hours in a workweek; or (2) receive an increase in their salary to meet the new requirement.

exempt-well-maybeUnder the new rule, the minimum annual salary for exempt employees will more than double, from $23,660 ($455 per week) to $47,476 ($921 a week). The minimum annual salary for highly compensated employees will also increase from $100,000 to $134,004. Furthermore, these minimums will continue to automatically increase every three years.

In a new addition to the rule, employers will now be permitted to satisfy up to 10 percent of the annual salary level through non-discretionary bonus and incentive payments, including commissions. Payments to health insurance policies, however, may not be used to satisfy the salary requirement.

Employers should keep in mind that employees must satisfy both the duties requirements as well as the minimum salary requirements to be classified as exempt. If an employee meets one but not the other, then he or she may not be classified as exempt.

CrowfundingThe Department of Labor (DOL) issued changes that substantially increase the
minimum salary requirement for certain exemptions under the Fair Labor Standards
Act (FLSA). The final rule will take effect on December 1, 2016. The FLSA requires covered employers to pay “non-exempt” employees at least the minimum wage for each hour worked as well as overtime pay for all hours worked in excess of 40 in a workweek. While
most employees are non-exempt, the FLSA includes exemptions for certain  administrative, professional, executive, highly compensated, outside sales, and computer professional employees. Currently, to be considered “exempt,” these employees must generally satisfy three tests:
1. Salary-level test:
Employers must pay employees at least the current minimum salary per week.
2. Salary-basis test:
With very limited exceptions, the employer must pay employees their full salary in any week they perform work, regardless of the quality or quantity of the work.
3. Duties test:
The employee’s primary duties must meet certain criteria.
Conclusion

December 1 is right around the corner. Employers should review their payroll records now to ensure they make any necessary salary increases or employee re-classifications come December. Failure to comply may open employers up to investigation by the Department of Labor, or may place employers at risk for liability in private or class action litigation.

For more information on the new rule, helpful fact sheets, and guidance on how to move forward in the wake of these changes, click here.

Will You Need to Re-Classify Your Employees, or Increase Their Salaries?

JGrady Firm-Logo-2016The Grady Firm, P.C. attorneys specialize in helping businesses grow and succeed through employment, business, and immigration law advising for clients in California.  They help perform personnel audits, train employers on employment law compliance, provide on-demand legal analysis for hiring and firing questions, and provide leadership and sexual harassment training in English and Spanish.

To learn more about ensuring your business is compliant with state and local laws, schedule a complimentary 15-minute consultation with The Grady Firm’s attorneys; call +1 (323) 450-9010; or fill out a Contact Request Form.

*This article is for informational purposes only, and does not constitute legal advice or create an attorney-client relationship. This article does not make any guarantees as to the outcome of a particular matter, as each matter has its own set of circumstances and must be evaluated individually by a licensed attorney.

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