On Wednesday, May 18, 2016, the White House and Secretary of Labor Thomas Perez announced the final new overtime exemption rules for executive, administrative, and professional employees, which become effective on December 1, 2016. While these regulations generally apply across all industries, it is expected that the greatest impact will be seen in the retail and hospitality industries. The highlights of the Final Rule are:
- The salary level test for the exemption is set at $913 per week, or $47,476 annually.
- For the first time, employers will be able to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary level. Such payments may include, for example, nondiscretionary incentive bonuses tied to productivity and profitability. For employers to credit nondiscretionary bonuses and incentive payments toward a portion of the standard salary level test, the Final Rule requires such payments to be paid on a quarterly or more frequent basis and permits the employer to make a “catch-up” payment. If a business pays a significantly larger bonus, however, the amount attributable toward the standard salary level is capped at 10 percent of the required salary amount.
- A mechanism exists for automatically updating the salary level threshold every three years. The announced salary level will stay in effect until January 1, 2020.
- The salary level for the exemption for highly compensated employees has been increased from $100,000 to $134,000 annually.
- The Final Rule does not change any of the existing job duty requirements to qualify for exemption. Thus, assuming an employee was paid at the appropriate salary level and satisfied the applicable primary duties test, the exemption is not lost because the employee performs a substantial amount of non-exempt work along with the employee’s exempt duties, or performs exempt and non-exempt duties concurrently.
- Additionally, the DOL has issued several guidance documents explaining the impact of the new regulations on certain segments of the economy, including small businesses, non-profit employers, higher education, and state and local governments. While certain “super” exemptions remain in place (such as for educators), the DOL apparently felt compelled to target these particular industries.
Nyemaster Goode’s Labor & Employment Law Department routinely counsels its client on compliance with federal and state wage and hour laws. If you have questions about implementing the new rules, our Labor & Employment attorneys are available to assist and can also perform a confidential and privileged audit to ensure compliance.