Michael J. Davey, Esq. mdavey@eckellsparks.com 610.565.3700

Wednesday, May 18, 2016

New Overtime Rule for Salaried Employees Announced

**UPDATE: Since this article was first published, a U.S. District Court in Texas held that these proposed regulations were unlawful and prevented them from becoming enforceable as of December 1. The Department of Labor appealed that decision to the 5th Circuit Court of Appeals. But then, Inauguration Day happened and a new Sheriff came to town, bringing with him a new Department of Labor Secretary and a new agenda. Consequently, the Department asked the Appeals Court for an extension of time to file its legal brief until it could determine what its position about these new proposed rules was going to be under President Trump. Because the new Labor Secretary has still not been confirmed by the Senate, the deadline for the Department's legal brief filing was most recently pushed back until June 30. More updates to come; stay tuned. 

This morning, President Obama and the Department of Labor (DOL) announced the publication of a final rule that will change the minimum monetary threshold required for employers to categorize employees as "salaried" under the federal Fair Labor Standards Act (FLSA). 

In order to legally classify an employee as "salaried" under the FLSA, an employer must prove that the employee meets two tests: the weekly salary test and a factual job-duties test. The most commonly utilized job-duties tests are the executive, administrative, and professional exemptions (also commonly known as the "white collar" exemptions). The DOL's newly announced rule does not make any changes to the factual job-duties portion of these exemptions. 

What will change (and in a big way) is the amount of weekly salary an employee who otherwise meets one or more of the factual job-duties tests must be paid in order to properly be classified as "salaried." Currently, an employer need only pay an employee a minimum of $455 per week in order to meet the weekly salary test. Under the DOL's new final rule, however, that minimum will be increased to $913 per week, or $47,476 a year. This new rule becomes effective on December 1, 2016.

This means that in 6 months, Employers who fall under the requirements of the FLSA will have to ensure that all of their "salaried" employees earn at least $913 a week in order to keep that classification. If any employee earns less than $913 a week come December 1, it does not matter what his or her job duties are—the employer cannot pay that employee on a "salaried basis." Rather, the employee must be paid as an hourly employee, which means the employer is then legally obligated to pay overtime at a rate of one-and-a-half times the regular rate of pay to that employee for all hours worked in excess of 40 a week, no matter what type of job the employee is performing. 

The DOL also announced that this new "wage floor" for salaried employees will be adjusted every three years so that the minimum weekly salary will always be equivalent to the 40th percentile of weekly earnings for full-time salaried workers in the lowest-wage Census Region. These adjustments will be published by the DOL at least 5 months before their effective date and will be placed on the Wage and Hour Division website. The first automatic adjustment will occur on January 1, 2020.

For more details on the DOL's final overtime rule, click here. Employers should start performing self-audits of their salaried employees now and put a game plan in place to ensure that compliance with these new requirements is achieved before December 1.

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