Legal Update

May 18, 2016

They’re Here: White Collar Exemption Revisions Announced

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The Department of Labor’s long-awaited revisions to the Fair Labor Standards Act’s white collar exemption were published earlier today.  Here are the bottom line changes:

  • The new salary level required for the executive, administrative, and professional exemptions will be $913 per week, which translates to $47,476 per year.
  • Up to 10% of the salary level can be met with bonuses and commissions. For employers to credit nondiscretionary bonuses and incentive payments toward a portion of the standard salary level test, however, such payments must be paid on a quarterly or more frequent basis.  Thus, an employer may pay an exempt employee working under an incentive plan 90% of the salary level.  At the conclusion of the quarter, if the employee has not received bonuses or commissions equaling or exceeding 10% of the salary level for 13 weeks, an employer may make a “catch-up” payment within one pay period after the end of the quarter.
  • The new salary level required to take advantage of the highly-compensated employee provision of the exemptions will be $134,004 per year. Of that, $913 per week must be paid on a salary basis.
  • The new levels will be effective on December 1, 2016. December 1 is a Thursday, which means that salary increases to ensure continued use of the exemption for weekly/biweekly employees must be made for the workweek (or pay period) that includes December 1.
  • The salary levels will be increased automatically every three years, starting on January 1, 2020. For the standard level, the amount will be based on the 40th percentile of full-time nonhourly workers in the region in which the salary level is lowest (historically, the South).  For the highly compensated employee provision, the amount will be based on the 90th percentile of full-time nonhourly workers nationally.  The Department will publish the information in the Federal Register in advance of the increase. It is expected that the salary will be $51,000 per year on January 1, 2020.

The salary level represents a slight reduction from the expected level of $50,440 per year, which was identified by the Department in its proposed rule last year. In addition, although an automatic increase was proposed and expected, doing so every three years—instead of annually—provides a small relief for the compensation planning process.

Over the past year, there has been a great deal of discussion about what the Final Rule might contain. Given those discussions, it is notable that the final rule does not:

  • change the primary duty test;
  • revise the tests for the duties required of executive, administrative, or professional employees;
  • amend the salary basis test;
  • apply any new compensation standards to doctors, lawyers, teachers, or outside sales employees; or
  • make any changes to the computer professional exemption (other than the salary increase, as may be applicable).

You can see the final rule here, our FLSA resource center here, and register for our upcoming webinar discussing the changes on Thursday, May 19 here.