New FLSA Exemption Rules Are Finally Announced

On May 18, 2016, the Department of Labor finalized regulations governing who is exempt from overtime under the Fair Labor Standards Act (FLSA), modifying the weekly salary and annual compensation threshold levels for white collar exemptions to FLSA overtime requirements. The new regulations are effective December 1, 2016.

The FLSA has three major exemptions from overtime: the executive, administrative, and professional exemptions. To qualify for the exemption, an employer must show that the employee both has duties that fall within the scope of the exemption and that the employee receives at least a certain salary. The FLSA gives the Department of Labor virtually carte blanche authority over setting the minimum salary necessary for the exemptions.

The salary levels for the exemptions have been particularly subject to the vicissitudes of partisan politics. The last adjustment to the salary test was established by the Bush Administration in 2004, and set the threshold at $23,660 per year. This resulted in what some saw as the anomalous result of characterizing employees making $12.00 per hour as “executives” who could not receive overtime. Also in 2004, the Department of Labor added a new “highly compensated” employees overtime exemption for employees making at least $100,000 annually.

With the change in presidential administrations in 2009, many expected that the Department of Labor would quickly revise the salary thresholds for the exemptions. However, seven years passed before the final regulations were published.

The new minimum salary for an exempt employee will be $47,476, slightly more than double the former level. $47,476 represents the 40th percentile of earnings for full-time salaried employees. The highly-compensated-employee salary threshold will be $134,004, representing the 90th percentile of earnings for full-time salaried employees.

The new rules will, for the first time, call for the salary levels to be updated every three years to reflect the 40th and 90th earning percentiles. However, the new regulations make no changes to the FLSA “duties tests,” though the Department of Labor has signaled that it may revisit the issue in the future.