Update: Review our new insight post on November 23, 2016 “So, never mind about those new FLSA regulations after all?“
The Department of Labor’s long-awaited final overtime rules were released this morning. In the Final Rules, the DOL set the minimum salary level to $913 per week, or $47,476 annually. The annual salary for highly compensated employees (“HCE”) was increased to $134,000 annually.
The DOL also included an automatic update to the salary level that will take place every three years, with the first automatic update going into effect on January 1, 2020. The automatic updates will be based on the same fixed percentiles of weekly earnings used to set the new minimum salary level, and the DOL expects that the January 1, 2020 salary level will be approximately $984 per week ($51,168 annually). The DOL estimates the HCE rate will increase to $147,524.
The Final Rules contain a change to the current regulations that will allow employers to include nondiscretionary bonuses, incentives, and commissions toward up to 10% of the required salary level for the standard exemption, as long as employers pay those amounts on at least a quarterly basis.
There were no changes to the duties test, despite some earlier indications that such changes might occur.
The Final Rules go into effect on December 1, 2016. Other than one narrow exception, the DOL declined to provide for a “safe harbor” period following the December 1, 2016 effective date, instead stating that it will “provide significant outreach and compliance assistance” to allow employers to reach compliance by December 1.
The DOL’s guidance reminds all employers that they may respond to the Final Rule in a number of ways – including reorganizing workloads or schedules to reduce the impact of the increased salary level.
For educational institutions, the comments to the proposed rules contained additional insight about coaches, stating that “coaches may qualify for the exemption if their primary duty is teaching as opposed to recruiting students to play sports or performing manual labor.” Educational institutions will also be interested in the DOL’s special guidance to colleges and universities that addresses issues unique to higher education. These two documents – a shorter summary and a more detailed explanation of the impact on higher education – offer reassurance to colleges and universities on several issues, including the status of research assistants and residential assistants.
Public institutions, such as school districts and community colleges should also take note of the DOL’s assistance guidance to state and local governments, which reminds those institutions of several items, including their ability to utilize compensatory (“comp”) time instead of overtime in certain situations.
Even with the delayed effective date, employers such as school districts and other educational institutions who operate on a July 1 fiscal year, will want to review the impact of the increased salary requirements as soon as possible. And while the Final Rule does not change the duties test, it provides an opportunity for employers to review the FLSA status of their employees and make any necessary changes.