Vigilant Blog

News, trends and analysis in employment law, HR, safety & workers' comp

May 19, 2016

ALERT: DOL reveals new salary level for salaried workers exempt from overtime

Wage and Hour 

Today the U.S. Department of Labor (DOL) announced its final regulations raising the minimum salary level for salaried workers to be exempt from overtime.

Today the U.S. Department of Labor (DOL) announced its final regulations raising the minimum salary level for salaried workers to be exempt from overtime. The rules take effect on December 1, 2016. Here’s what you need to know:

  • The minimum salary level for exempt executive, administrative, and professional employees will be $913 per week, or $47,476 annually for a full-year worker. This works out to a biweekly salary of $1,826, a semimonthly salary of $1,978, or a monthly salary of $3,956.
  • You may satisfy up to 10 percent of the minimum salary requirement with nondiscretionary bonuses, incentive payments, and commissions, as long as this extra compensation is paid at least quarterly. If by the last pay period of the quarter, the total of the weekly salary plus the extra compensation received doesn’t equal 13 times the weekly salary (i.e., $11,869 for the quarter), you may make one final payment to reach the minimum level no later than the next pay period after the end of the quarter. That final payment can only be counted once (i.e., for the prior quarter).
  • For workers who qualify for the “highly compensated employee” (HCE) exemption, the minimum annual salary will rise from its current level of $100,000 to $134,004. The option of applying extra compensation paid at least quarterly for up to 10 percent of the minimum salary isn’t available for this exemption. Keep in mind, however, that you must comply with both federal and state overtime exemptions, and there is no authority in California, Oregon, or Washington for this HCE exemption. Employers in Idaho and Montana should be able to use the HCE exemption, but check with your Vigilant employment attorney before taking action.
  • These minimum rates will be updated every three years, with the first potential increase scheduled to occur on January 1, 2020. The minimum salary for exempt executive, administrative, and professional employees will be based on the 40th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region (currently the South). The minimum salary for the HCE exemption will be based on the 90th percentile of full-time salaried workers nationally. The new figures will be announced at least 150 days before the next effective date.
  • No changes were made to the “duties” tests for exempt status. In order to be exempt from overtime, an employee must meet both a duties test and a salary test. See our Legal Guides, “When Is an Employee Exempt Under Federal Law?”, “Salary Basis Test for Overtime Exemptions”, and “State Laws on the White Collar Exemptions from Overtime”. We will soon be updating these publications with the new salary requirements.
  • The DOL has announced a temporary non-enforcement policy for certain providers of Medicaid-funded services. This non-enforcement policy applies only to providers of Medicaid-funded services for individuals with intellectual or developmental disabilities in residential homes and facilities with 15 or fewer beds. The DOL will continue this non-enforcement policy through March 17, 2019. Larger facilities will have to comply with the same December 1, 2016, deadline as everyone else.

Tips: If you have any exempt workers whose salary is below the new threshold, talk with your Vigilant employment attorney to evaluate your options. If you want the workers to remain exempt from overtime, you’ll need to increase their wages. Before doing so, you should verify that their duties truly fit within the relevant duties tests under both federal and state law. If it’s unclear whether they meet the tests, the publication of these rules may give you a unique opportunity to play it safe and switch to nonexempt status without raising too many red flags. If you decide to convert anyone from exempt to nonexempt status, you will need to determine how to communicate the change, what benefits may be affected, and what procedures they will have to follow in order to ensure that they are properly paid for overtime. Vigilant will be presenting a complimentary webinar this summer to explain the new rules and help you understand your options. Watch your inbox for an invitation. In the meantime, if you have any questions about the new rules, please contact your Vigilant employment attorney.

This website presents general information in nontechnical language. This information is not legal advice. Before applying this information to a specific management decision, consult legal counsel.