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Department of Labor - FLSA - New "Overtime" Compensation Regulations

Patterson, P.C.

May 23, 2016 (Houston) On May 18, 2016, the Department of Labor issued new regulations with widespread changes affecting all businesses and employees covered by the federal Fair Labor Standards Act. The regulations become effective December 1, 2016. The changes apply to any businesses and individuals covered by the Fair Labor Standards Act (“FLSA”). The changes are significant:

  1. Minimum Salary Threshold for Exempt Status

The new regulations change the minimum salary threshold (and the computer employee exemption) for exempt status has been raised from a gross of $23,660 to $47,476 a year, or from $455 to $913 a week. The minimum salary threshold will be automatically updated every three years to maintain the 40th percentile of full-time salaried workers in the lowest income region of the country. Based on projections of wage growth, the threshold is expected to rise to more than $51,000 with the first update on January 1, 2020.

  1. Highly Compensated Employee Exemption

The regulations also raise the threshold for the “highly compensated employee” exemption from $100,000 to $134,004.

  1. Counting Bonuses and Incentive Payments Toward the Salary Threshold

For the first time, the new regulations allow employers to count nondiscretionary bonuses and incentive payments (including commissions) toward up to 10 percent of the new salary level. For employers to credit nondiscretionary bonuses and incentive payments toward a portion of the salary level test, such payments must be paid on a quarterly or more frequent basis.

Employers with exempt employees who are paid a salary that falls short of the new salary threshold will effectively have two choices as of December 1, 2016: (1) increase the employees’ salaries to comply with the new threshold; or (2) start paying overtime on an hourly basis for affected employees who work more than 40 hours a week.

Action Items

The Department of Labor will release three technical guidance documents, designed to help private employers, non-profit employers, and institutions of higher education come into compliance with the new rule. In the meantime, employers may wish to consider the following actions:

  • Perform a preliminary audit to identify employees affected by the new regulations;
  • Develop an action plan for any affected employees to ensure compliance; and
  • Develop a plan to communicate with employees and for responding to employee questions, concerns, or demands following these widely reported and publicized changes.

The new regulations also may present an opportunity to conduct a broader wage and hour audit to determine compliance with unchanged aspects of the Fair Labor Standards Act. Employers should consider their obligations under these new regulations and how to adapt to them before the effective date of December 1, 2016.