U.S. Department of Labor Finalizes New Rule Limiting Overtime Exemption for Executive Employees
The United States Department of Labor (DOL) has published its Final Rule updating the Fair Labor Standards Act (FLSA) salary threshold that triggers an exemption from overtime pay for Executive, Administrative and Professional (EAP) employees. Under the new Rule, EAP employees must be paid $913 weekly or more, in order to be exempt from overtime pay requirements. DOL estimates that as a result of this change, an estimated 4.2 million workers nationwide, including 277,998 workers in New York State, who are currently exempt, will be entitled to overtime pay.
Since 1940, DOL regulations have required employees to meet all three of the following tests in order to qualify for the FLSA’s EAP exemption for overtime pay:
(1) the employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the “salary basis test”);
(2) the amount of salary paid must meet a minimum specified amount (the “salary level test”); and
(3) the employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations (the “duties test”).
The Final Rule modifies the salary level test by setting the "standard salary level" at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region (currently the South), thereby raising it from $455 per week ($675 per week in New York State) to $913 per week ($47,476 annually for a full-year worker). In addition, the Rule raises the total annual compensation requirement to qualify as a "Highly Compensated Employee" (HCE), from $100,000 to $134,004 per year. HCEs are employees that are exempt from the FLSA’s overtime protections based on their level of compensation and a minimal duties test, even though they do not meet all of the other requirements for exemption as an EAP.
The Final Rule allows employers to use nondiscretionary bonuses and incentive payments to satisfy up to 10 percent of the new standard salary level. Both the standard duties test and the HCE duties test remain unchanged.
The effective date of the final rule is Dec. 1, 2016. The initial increases to the standard salary level (from $455 to $913 per week) and HCE total annual compensation requirement (from $100,000 to $134,004 per year) will be effective on that date. Automatic updates to those thresholds will occur every three years, beginning on Jan. 1, 2020.
Some non-profit organizations are exempt from the FLSA. However, non-profits that provide medical or nursing care for residents are not exempt. Guidance for non-profits is available here.
The Final Rule provides for a short-term, non-enforcement policy for providers of Medicaid-funded services for individuals with developmental disabilities in residential homes and facilities with 15 or fewer beds. From Dec. 1, 2016 to March 17, 2019, DOL will not enforce the new standard salary level for this subset of employers.
Questions and Answers on the Final Rule are available here. DOL is hosting informational webinars on the Final Rule Registration information is available here. Additional information is available here. LeadingAge New York urges members to consult with their labor and employment attorneys to assess the implications of the Final Rule for their organizations and employees.
Contact: Karen Lipson, firstname.lastname@example.org, 518-867-8383 ext. 124.