DOL Issues Final Rule: Big Changes to Minimum Salary Requirements for White-Collar Workers

After the release of the long-awaited Final Rule from the DOL, the good news is that employers have just over six months before the rule goes into effect, providing them a window to assess current wage and hour practices, particularly as they relate to the classification of exempt workers. Employers need to evaluate several areas of their workforce to determine how this new Final Rule will impact their workers’ classification

The Final Rule from the DOL significantly increased the minimum salary requirements for Executive, Administrative and Professional workers to be exempt from overtime pay. The Rule is effective December 1, 2016, and calls for minimum salary for white-collar exemptions subject to the salary basis test will increase from $455 per week to $913 per week ($26,660 to $47,476 annually). The current salary minimum of $455 per week has not changed since 2004. The impetus behind this change, according to the DOL, is that approximately 5.7 million white collar workers are misclassified.

The standard annual compensation requirement for highly compensated employees (“HCE”) will be raised from $100,000 to $134,000 per year, which is based on the 90th percentile of full-time salaried workers nationally. Significantly, there were no changes to the standard duties tests for any of these exemptions.

After the initial increase, both salary minimums will automatically update every three years starting on January 1, 2020. Also, under the Final Rule up to 10 percent of an employee’s required salary level can include non-discretionary bonuses, incentives, and commissions, as long as those amounts are paid on at least a quarterly basis.

Simply raising their salaried employees’ wages to $913 per week minimum may not be the best decision for every employer. Employers need to explore reclassifying their employees as hourly, rather than salaried. That’s never easy, as some affected employees may view the change as a form of demotion. The point here is that employers need to spend some substantial time thinking about what is best for their employees and their business. That means sitting down and analyzing which employees will fall below the new minimum wage amount for exempt workers, figuring out how to keep track of hours if the employee is determined to be an hourly employee, what do to if employees work remotely, and other related issues. Employers must have a candid conversation with their employees about these mandated wage changes, the impact on daily operations, and any new overtime hour guidelines they may put in place.

Given the large number of estimated misclassified employees, it is prudent for employers to look not only at the salaries paid to their exempt workers but also to re-examine the duties of affected positions in light of the standard duty tests. Such a review, although a burden, is also an opportunity for employers to correct any problematic classifications that may have lingered in their organizations without raising red flags with employees about why the review of their classifications is being done.

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