Update to Salary Thresholds
Are your employees meeting the requirements for minimum wage and overtime exemption? Find out about the new provisions for certain employees under the Fair Labor Standards Act.
On May 18, 2016, the Department of Labor’s (DOL) Wage and Hour Division issued a Final Rule on new proposed overtime standards. The new provisions update the regulations and minimum salary thresholds in which executive, administrative, and professional employees can be exempt from overtime.
Provisions Effective December 1, 2016:
- The salary threshold for classifying an employee as exempt from overtime increases to $913 per week ($47,476 annually), up from $455 per week ($23,660 annually).
- Bonuses, incentive pay, and commissions may make up to 10 percent of this income, as long as that portion of the compensation is paid at least on a quarterly basis. If the employee does not earn enough in bonuses and commissions to meet the full minimum salary requirement, a “catch-up” payment can be made by the employer once a quarter.
- This salary threshold will increase every three years based on the 40th percentile of full-time salaried workers in the country’s lowest income region (currently the South). The next change is anticipated on January 1, 2020 and will increase the minimum salary to $51,168.
- The minimum salary threshold for Highly Compensated Employee (HCE) exemption increases to $134,004 annually, up from $100,000 annually. This threshold, based on the 90th percentile of full-time salaried workers, will also see an increase every three years.
- The new provisions and minimums only impact white collar workers who were previously exempt under the White Collar Exemptions (executive, administrative, and some exempt professional employees). The duties tests for White Collar Exemptions have not changed.
Note that some state wage laws may carry different minimum salary levels. When state laws differ from the FLSA, an employer must comply with the standard most beneficial to employees. If the federal minimum salary level is higher than a state-mandated minimum, the federal level must be followed.
What You Need to Do
Take the time now to verify that you are properly following the White Collar Exemption model, all employees are properly classified, and your business is in compliance with applicable state wage laws. You may want to consider a wage and hour self-audit to ensure you are completely in compliance and have an accurate understanding of all employees’ payroll records, timekeeping reports, classification and exemptions statuses, overtime hours worked, and that all FLSA and state labor law obligations are fully addressed.
Once you have verified compliance with current overtime and wage and hour laws, there are specific action items to consider related to the DOL’s new rule:
- Identify the impacted exempt employees.
- If they are above the threshold, you are in compliance with the new rule for 2016. Revisit their salary and wages when the threshold is expected to increase again in 2020.
- If they are below the threshold, you have choices to consider:
- Increase the employees’ salaries to comply with the updated threshold.
- Start paying overtime on an hourly basis for the affected employees who work more than 40 hours a week. As a reminder, overtime pay is not to be less than time and one-half of the employees’ regular rates of pay.
There is not a one-size-fits-all solution for every business. Each employer should evaluate their business model and consider which solution will best fit their needs.
Prepare for the new changes to overtime before the December 1st deadline. Contact your Alloy Silverstein CPA or Abacus Payroll specialist if you require additional guidance on the DOL’s new overtime rules.
HR Help Center & DOL Overtime Standards
Abacus Payroll’s HR Help Center has several materials that can aid you in preparing for this legislative update, including:
- An implementation and decision making guide on the new FLSA changes
- 2-Minute HR training on facts of the new rule
- Employee letter addressing a classification change and a memo template to request tracking of their hours
- Guide to calculating overtime for non-exempt employees who receive bonuses and/or commissions as part of compensation
- Updates for the planned threshold increases over the next few years
- And much more…