The United States Department of Labor (“the DOL”) has finally issued the long-awaited rules dramatically increasing the minimum salary level for the overtime-exempt classifications under the Fair Labor Standards Act (“the FLSA”). The new rules also incorporate mechanisms to adjust this salary level in the future. The effect of future adjustments will require an employer to pay wage increases unrelated to the employer’s financial condition or employee performance. The new rules will have the greatest impact on those employees currently classified as exempt but who will not meet the new minimum salary threshold. These rules go into effect December 1, 2016, a date later than DOL originally communicated, which gives employers an opportunity to conduct a self-analysis to prepare for these changes.
In 2014, President Obama directed the DOL to update and modernize regulations under the Fair Labor Standards Act governing overtime exemptions for “white collar” employees (i.e., executive, administrative and professional employees). On July 6, 2015, the DOL published a notice of proposed rule making to which it received more than 270,000 comments representing differing viewpoints. On May 18, 2016, the DOL issued the final rule updating the regulations. Under the final rule, the annual salary level for these exemptions will more than double from $23,660 ($455 per week) to $47,476 ($913 per week) beginning on December 1, 2016. (The increase will equal the salary level of the 40th percentile of weekly earnings for full-time salaried workers in the South, which is currently the lowest-wage Census region). These salary levels were last updated in 2004, and the DOL has stated that this new rule will “automatically extend” overtime to an estimated 4.2 million employees who are currently classified as exempt. The increase is less than that originally proposed by the DOL ($50,440 per year or $970 per week).