Perspective: Kirton McConkie Law Blog

DOL Issues Final Rule Increasing the Salary Threshold for the Overtime Exemptions

The Fair Labor Standards Act (“FLSA”) generally requires employers to pay non-exempt employees overtime compensation for all hours worked over 40 in a workweek.  Overtime compensation must be at least one and one-half times the employee’s regular pay rate.  Although there are many exemptions from the overtime requirements, only workers who perform certain duties and were paid at least minimum salary thresholds qualified for any of the exemptions.  

Since 2004, employees had to be paid at least $455 per week ($23,660 per year) to qualify for the executive, administrative, professional, outside sales, and computer employees exemptions.  On May 18, 2016, the United States Department of Labor (“DOL”) promulgated a new rule increasing the salary threshold for these exemptions to $47,476 annually (or an estimated $913 per week).  This change significantly expands the number of workers who are eligible for overtime under the FLSA.  The new rule takes effect on December 1, 2016. 

Moreover, the salary threshold will mechanically update every three years.  The automatic updates are designed to ensure that the threshold remain at the fortieth (40th) percentile of full-time salaried employees throughout the country. 

The DOL has also increased the minimum salary that an employee must be paid to be considered exempt under the Highly Compensated Employee exemption.  Currently, an employee must have a total annual compensation of at least $100,000 to qualify for this exemption.  The new rule raises this threshold to a total annual compensation of at least $134,000. 

Employers need to evaluate whether salaried, exempt employees need to be reclassified as nonexempt and eligible for overtime.  Reclassification should be completed before the new regulations go into effect.  This creates an opportunity for employers to take a look at each of their salaried positions that they have classified as exempt to ensure that workers in those positions satisfy all of the requirements to be exempt from the FLSA’s overtime mandate.