Client Alert – DOL Minimum Salary Increase

Employment Law Update

May 2016

On May 18, 2016, the Department of Labor (DOL) released information about its Final Rule regarding the much anticipated increase of the minimum salary necessary to qualify for certain exemptions from the overtime rules under the Fair Labor Standards Act.  The effective date of the Final Rule is December 1, 2016.

The new DOL rule would increase the minimum salary for exempt employees to $47,476 a year, or $913 a week. This is a substantial change, as the current minimum salary is $23,600 per year, or $455 per week. The new rule also establishes a mechanism by which the minimum salary levels will automatically increase in the future with inflation every three years. By way of example, an employer may currently have an employee (i) who is paid on a salary basis, (ii) who earns $40,000 a year, and (iii) whose job duties classify the employee as an exempt employee. This individual meets all three current exemption criteria and is not eligible for overtime pay. However, as of December 1, 2016, this employee will be entitled to overtime pay for every hour worked over 40 in a given work week, because he or she will no longer meet the new minimum salary requirement.

Although the terms of the Final Rule have not yet been officially published in the Federal Register, the Final Rule will not likely be substantively different from the summary released by the DOL on May 18th.  Other highlights of the new rule are as follows:

  • The annual compensation for highly compensated employees will increase to $134,004; and
  • Employers may use nondiscretionary bonuses and other incentive-based payments (including commissions) in certain circumstances to satisfy up to 10% of the new minimum salary;

While legal challenges to the Final Rule are likely, employers should be prepared to comply with the new regulations later this year. The DOL has created a webpage that contains additional information relating to the Final Rule.

Below are some issues that employers might want to consider at this time:

  • Identify employees who will need to be reclassified (i.e., current employees who are exempt but paid less than $47,476 annually);
  • Determine the number of hours such employees work, which may be difficult, because exempt employees are not required to track their hours and, therefore, employers may not be fully aware of the hours an exempt employee is working;
  • Analyze the financial impact of the new rules to determine whether you should (a) raise salaries to the new minimum salary; (b) reclassify employees as nonexempt and pay them overtime; or (c) reduce pay to offset the overtime requirement; and
  • Review job descriptions and tasks of affected positions to determine if certain exempt tasks should be reassigned.

If you have any questions or would like to discuss the issues summarized herein in more detail, please do not hesitate to contact Bryan Niemeyer, Certified Labor and Employment Law Specialist, Faulkner, Garmhausen, Keister & Shenk, A Legal Professional Association, at 937-492-1271 or bniemeyer@fgks-law.com.

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