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Changes to the Federal Fair Labor Standards Act’s overtime regulations will go into effect on December 1, 2016. The changes focus primarily on updating salary and compensation levels for Executive, Administrative, and Professional workers exempt from the Act.
Establishing that an employee is exempt from the Fair Labor Standards Act’s minimum wage and overtime requirements involves assessing how the employee is paid, how much the employee earns, and whether the employee primarily performs the type of job duties that Congress meant to exclude from the law’s overtime protections. In order for an exemption to apply, an employee’s specific job duties and earnings must meet all of the requirements provided in the regulations. For an employer to claim a “white collar” exemption for a particular employee, three tests generally need to be satisfied:
- Salary Basis: The employee must be paid on a salary basis, a predetermined and fixed amount that is not subject to reduction;
- Salary Level: The amount of salary paid must meet a specified minimum amount; and
- Duties Test: The employee’s job duties must primarily involve those associates with exempt executive, administrative, professional, outside sales, or computer employees.
Several changes have been made to the salary basis test:
- Raise the minimum salary required to pass the salary test to at least $913.00 per week, or $47,476.00 annually. This is a major increase from the previous minimum annual salary level of $23,660.00 for exempt employees;
- Raise the total annual compensation requirement for highly compensated employees, subject to a minimal duties test, to $134,004.00. That exemption was previously set at $100,000.00.
- Establish a mechanism for automatically updating the salary and compensation levels every three years, with the first update to take place in 2020.
Additionally, the changes amend the salary basis test to allow employers to use non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level. Employees must be paid on a quarterly or more frequent basis before employers are allowed to credit these payments toward the salary level test. Non-discretionary bonuses and incentive payments are forms of compensation promised to employees to induce them to work more efficiently or to continue their employment. If an employee does not earn enough of a nondiscretionary bonus or incentive payment in a given quarter to retain his or her exemption status, the Department of Labor permits the employer to make a “catch up” payment no later than the next pay period after the end of the quarter. If such catch up payment is not made within this timeframe, the exemption is lost and overtime rates, at time and a half, must be paid.
Employers have options for responding to the changes to the salary level, including providing pay raises that increase workers’ salaries to the new threshold, or reducing or eliminating work hours for individuals working over 40 hours per week. Employers can also adjust the amount of an employee’s earning to reallocate between regular wages and overtime wages so that the total amount paid to the employee remains, for the most part, the same.
- Kristy E. Armada is a land use attorney at the Florida law firm of Hackleman, Olive & Judd, P.A. Ms. Armada represents clients in a broad range of land use matters including site plan approvals, code enforcement matters, permitting, and examination of current and future entitlement rights.