FLSA Rule Changes – Get Ready Now

The long anticipated changes to the Fair Labor Standards Act (FLSA) have been announced, so companies may get to work to be in compliance by December 1, 2016. The looming questions are 1) what changed and 2) what do companies have to do to comply?

As expected, the minimum annual salary threshold has increased – it has essentially doubled from the former $23,660 to $47,476, but is less than the initially proposed $50, 400. This means that exempt employees who make less than the threshold amount must either receive an increase in pay or be changed to non-exempt status and paid overtime for every hour over worked over their state’s threshold (8 hours per day or 40 hours per week).

The “highly compensated employee” (HCE) salary threshold is increasing to $134,004 per year, up from $100,000 per year. This level is now required to keep HCE’s at exempt status.

In the past, changes to salary thresholds have only been changed by a new ruling. Going forward, these will be updated every three years, beginning January 1, 2020. This is designed to help keep pace with increases in wages, cost of living and inflation. Each 3 year increase will be based on the 40th percentile of full time salaried workers in the lowest range census area (currently the South). HCE threshold increases will be based on the 90th percentile of full time salaried workers nationally.

Newly added is the ability to include non-discretionary bonuses, incentives, and commissions in the salary threshold. This does not mean that an employer may award a bonus near the end of the year to insure the salary threshold is met. These forms of compensation may not comprise more than 10% of the annual salary and must be awarded on a quarterly basis, at a minimum.

No changes to the duties test have been made. It is important for companies to look at job descriptions to insure that each position reflects the necessary essential duties to support the job classification.

Achieving compliance with the new FLSA requirements can be complicated and requires careful attention to job descriptions and compensation plans. Although there has been conversation around groups challenging these new regulations, our legal partners believe it unlikely any changes will happen. Waiting in hope that this will occur is not a recommended strategy. Ask for assistance in achieving compliance if you do not currently have the human resources expertise in-house to assist you.