DOL Final White Collar Exemption Rule to Take Effect on December 1, 2016

Nearly a year after the Department of Labor (“DOL”) issued its Notice of Proposed Rulemaking to address an increase in the minimum salary for white collar exemptions, the DOL has announced its final rule, to take effect on December 1, 2016.

While the earlier notice had indicated that the salary threshold for the executive, administrative, and professional exemption would be increased from $23,660 ($455 per week) to $50,440 ($970 per week), the final rule will not raise the threshold that far.  Instead, it will raise it to $47,476 ($913 per week).

According to the DOL’s Fact Sheet, the final rule will also do the following:

• The total annual compensation requirement for “highly compensated employees” subject to a minimal duties test will increase from the current level of $100,000 to $134,004, which represents the 90th percentile of full-time salaried workers nationally.

• The salary threshold for the executive, administrative, professional, and highly compensated employee exemptions will automatically update every three years to “ensure that they continue to provide useful and effective tests for exemption.”

• The salary basis test will be amended to allow employers to use non-discretionary bonuses and incentive payments, such as commissions, to satisfy up to 10 percent of the salary threshold.

• The final rule does not in any way change the current duties tests.

While it is certainly good news for employers that the duties tests will not be augmented and that non-discretionary bonuses and other incentive payments can be used to partially contribute to the salary threshold, the increase to the salary threshold is expected to extend the right to overtime pay to an estimated 4.2 million workers who are currently exempt.

With the benefit of more than six months until the final rule takes effect, employers should not delay in auditing their workforces to identify any employees currently treated as exempt who will not meet the new salary threshold. For such persons, employers will need to determine whether to increase workers’ salaries or convert them to non-exempt.