White-Collar Exemption Salary Requirements Enforced Starting December 1

White-Collar Exemption Salary Requirements Enforced Starting December 1

Bulletin Type: 
Benefit Bulletins

Annual income threshold lower for non-HCE workers than proposed

Employers have known for months that the Department of Labor was reexamining salary requirements for exempt positions under the Fair Labor Standards Act. The final rule, which takes effect December 1, 2016, set an annual income threshold of $47,476 ($913 a week) for an exempt employee, slightly lower than the proposed rule’s $50,440.

The final rule includes a salary adjustment every three years starting in 2020. The previous $23,660 income threshold hadn’t been modified in more than a decade. The automatic increase will be based on the 40th percentile of weekly earnings of full-time workers in the lowest-wage census region, the South.

Highly compensated employees

The exemption for highly compensated individuals subject to minimal duties test moved from $100,000 annually to $134,004 annually, an increase from the proposed rule’s suggested $122,148 threshold. Amounts will be adjusted every three years to align with salary percentile thresholds (90th percentile for highly compensated workers) or changes to the Consumer Price Index.

Bonuses, incentive payments, and commissions

The final rule allows up to 10% of the salary threshold for non-HCE employees to be met by non-discretionary bonuses, incentive pay, or commissions, provided these payments are made on at least a quarterly basis. If an employee does not earn enough of a non-discretionary bonus or incentive payment in a given quarter to meet the standard salary level, an employer may make a “catch-up” payment no later than the next pay period after the end of the quarter. Any such “catch-up” payment counts only toward the prior quarter’s salary. Prior to this final rule, the DOL required the entire salary level to be paid in each work week. The DOL provides a Q&A on the treatment of bonus pay and other related issues.

Duties test

The final rule does not make any changes to the “duties test” that determines whether white -collar salaried workers earning more than the salary threshold are ineligible for overtime pay. For workers with salaries above the updated salary level, employers will continue to use the same duties test to determine whether or not the worker is entitled to overtime pay.

Employers affected by the upcoming changes should have strategies in place to either reclassify employees or make salary changes.

Questions about the new changes can be directed to Shirley Lind, CEBS, SPHR, who leads Bukaty Companies’ Human Resources division, at slind@bukaty.com.