Questions and Answers on the DOL Salary Basis Requirement Final Rule

Miller & Martin PLLC Alerts | May 18, 2016

by Brad Harvey

President Obama on Tuesday announced the U.S. Department of Labor's Final Rule raising the minimum salary basis for certain exemptions from overtime requirements under the Fair Labor Standards Act ("FLSA"). Below are answers to some common questions about the Final Rule.

Q:   What is the new guaranteed minimum salary?
A:    $47,476, which amounts to $913 per week.

Q:   What was the old minimum?
A:    $23,660, which amounts to $455 per week. Notably, the old minimum was below the federal poverty level of $24,008.

Q:   When is the new Final Rule set to go into effect?
A:    December 1, 2016.

Q:   Does the Final Rule apply to all FLSA exemptions?
A:    No. This salary basis requirement only applies to the Executive, Administrative and Professional exemptions.

Q:   Did the Final Rule change the "duties tests" for these exemptions?
A:    No. Last year, the DOL invited comments on these tests, but no changes in the duties test are on the immediate horizon.

Q:   Can employers count other payments to reach the minimum salary?
A:    Yes, for the first time, employers may count non-discretionary bonuses, incentives, and commissions toward as much as 10% of the minimum salary threshold.

Q:   Will the minimum salary continue to be adjusted upwards in the future?
A:    Yes. The Final Rule provides for adjustment every three years, which is a change from the annual adjustment called for by the Proposed Rule.

Q:   What about Highly Compensated Employees?
A:    The Final Rule increased the salary threshold for the Highly Compensated Employees exemption to $134,004, up from the previous minimum of $100,000.

Q:   What are the chances that the new minimum salary will be adjusted downward or that the targeted effective date will be delayed?
A:    Don’t count on it. Employers should plan as if the Final Rule will go into effect as written on December 1. The minimum salary already was adjusted downward from the proposed $50,440 to align with the 40th percentile of salaried employees in the South, as opposed to the 40th percentile nationwide. The timing of the Final Rule was pushed forward to assure that it will go into effect before President Obama leaves office. It is very unlikely that Congress would be able to override the Final Rule. Of course, political pressures may arise in the context of the upcoming elections.

Q:   Does this mean millions of employees will receive raises?
A:    Not necessarily. First, employers can manage employees' hours so that they do not exceed 40 hours in a workweek and are not entitled to overtime pay, even if they will now be non-exempt due to not meeting the new salary basis test. Additionally, employers can set the pay rate for employees who are reclassified as non-exempt to still fall within their compensation budgets. To take an extreme example, a non-exempt employee earning the federal minimum wage of $7.25 per hour and working 40 hours per week would earn only $15,080 per year. Clearly, then, an employer could set an hourly rate well above minimum wage and allow a fair amount of overtime before it would have to pay a non-exempt employee as much as $47,446 in a year.

If you have any questions about the DOL Final Rule, its effects on your company, and strategic ways to handle these effects, please contact Brad Harvey, Karen Smith, or any other member of our Labor & Employment Law Practice Group.

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