Some Salaried Employees May be Entitled to Overtime under New Regulations

New 2016 Federal regulations revise FLSA exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees by changing the minimum salary requirements for the white collar exemptions. Under current regulations, employees who made $455 per week AND met the “job duties” test, qualify for the white collar exemption and are not entitled to overtime. Now, under the new 2016 regulations, salaried employees must be paid a minimum salary requirement of $913/week to be exempt from being paid overtime. The 2016 regulations also increase the salary requirements for Highly Compensated Employees from $100,000 per year to $134,004 per year. These new regulations go into effect on December 1, 2016.

The 2016 regulations however, make no changes to the “job duties” test for white collar exemptions. The following must be met be for employees to qualify under each of these exemptions:

Executive:

• The Executive must be paid on a salary basis, at a rate not less than $913 per week;
• The “primary duty” must be managing the enterprise or managing a recognized department or subdivision;
• The Executive must regularly direct the work of at least two or more full-time employees (or their equivalent); and
• The Executive must have authority to hire or fire employees, or his/her suggestions concerning hiring, firing, advancements, promotions or other staff changes must be given particular weight.

Administrative:

• The Administrative employee (AE) must be paid on a salary basis, at a rate not less than $913 per week;
• The AE’s “primary duty” must be performing office or non-manual work that is related to management or general business operations; and
• The AE’s “primary duty” must include the exercise of discretion and independent judgment on significant matters for the business.

Professional:

• The Professional employee (PE) must be paid on a salary basis, at a rate not less than $913 per week;
• The PE’s “primary duty “must be performing work which requires advance knowledge, which is considered work that is predominantly intellectual in nature and requires a consistent exercise of discretion and judgment;
• The advance knowledge must be in a field of science or learning; and
• The advance knowledge must customarily be acquired through a prolonged course of specialized education or intellectual instruction.

Computer Professional:

• Hourly Computer employees who earn at least $27.63 per hour and perform certain duties are not impacted by the salary requirements in the new regulations.
• A salaried computer worker is exempt under the FLSA only if the above listed requirements are met for Executive, Administrative or Professional exemptions – including the above salary requirement.

 Outside Sales:

• Door-to-door or outside sales employees are not impacted by the 2016 salary regulations, as long as the employees properly qualify for this exemption under the other DOL requirements.

10% of Nondiscretionary Bonuses and Incentive Pay May Count Toward $913 salary:

• The new regulations expressly state that nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of $913 weekly salary minimum. Caveat: for bonuses and incentive pay to count towards a portion of the $913 salary floor, the payments must be paid on a quarterly or more frequent basis.
• The bonuses need to be set on objective standards. Examples given by the DOL include bonuses for meeting set production goals, retention bonuses, and commission payments based on a fixed commission formula.
• Discretionary bonuses which are given based on the employer’s sole discretion cannot be used to satisfy the new FLSA salary minimum.

​ New Salary Levels Will Increase Every 3 Years:

• Every 3 years the minimum salary requirements will increase. The first increase will be on January 1, 2020.

Payments on a Fee Basis:

• The DOL has determined that employees who would otherwise qualify for the above-listed exceptions may also be paid on a fee basis in lieu of a salary. This would occur for example when an employee has a contract to perform a particular task in exchange for a specified fee.
• To determine whether the fee satisfies the new FLSA salary requirements, the DOL will look at the amount of time (i.e., number of hours) the employee spent working on the job and determine whether the employee was paid at least $913 per week based on the fee provided for in the contract.

The DOL has stated that employers will have a range of options when responding to the new salary requirements. Employers may:

• Increase employee salaries for employees who clearly meet the above-listed duties tests and are likely to work overtime hours;
• Retain current salary levels and pay overtime wages, which equal one and a half times the employee's regular rate of pay for any overtime hours worked;
• Retain current salary levels and reduce or eliminate the number of hours employees work;
• Reduce or change employee salaries and add pay to account for overtime for hours worked over 40 in the workweek, to hold total weekly pay constant; or
• Use some combination of the above.