New FLSA Overtime Rule Issued for Executive, Administrative and Professional Employees


On May 18, 2016 the Department of Labor announced the final version of the overtime exemption rule, raising the minimum salary threshold under the Fair Labor Standards Act’s “white collar” exemption to $47,476 per year ($913 per week).

What this means is that even if an employee is classified as an executive, administrative, or a professional (“EAP”) employee, they will still qualify for overtime if they earn less than $47,476 per year. The previous salary threshold was $23,660 per year. According to the DOL, the change in the salary threshold will extend overtime protection to an additional 4.2 million workers.

The final rule also sets the total annual compensation requirement for highly compensated employees (“HCE”) to $134,004. Additionally, the final rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new HCE standard salary level.

The final rule makes no changes to the duties test for EAP and HCE employees. Therefore, if an employee’s day-to-day job duties do not meet the duties tests for an EAP exemption, they may need to be reclassified as non-exempt regardless of their salary level.

Employers have until December 1, 2016 to institute changes to comply with the new rule.

To prepare for the changes, employees should:

  • begin reviewing and analyzing current employee salaries, job duties, and classifications;
  • prepare to make appropriate classification changes and/or salary increases to meet the new minimum salary test if necessary (note: if the employee does not meet the duties test for an EAP exemption, they may need to be reclassified regardless of their salary level, and therefore, their salary may not need to be increased);
  • prepare to pay newly classified non-exempt employees hourly and train them to track their time;
  • review overtime polices (do they require employees to receive management approval before working overtime and do they provide for disciplinary action if employees work overtime without authorization?);
  • review bonus policies and make adjustments to bonus policies based on salary adjustments (reduce or eliminate bonuses for those employees whose salaries are increased and increase their salaries based on these bonus amounts);
  • change staffing levels to eliminate unnecessary overtime;
  • consider changing compensation structures to pay on commission or on a fluctuating workweek basis if appropriate; and
  • consider whether eligibility for employee benefit plans need to be changed based on employee reclassifications.

According to the new FLSA rule, the DOL will adjust the salary thresholds every three years. The first update will occur on January 1, 2020. The automatic increase is based on the 40th percentile of the weekly earnings of full-time salaried workers in the lowest wage Census region (the South). Current projections are that the threshold would rise to more than $51,000 by that time.

Additional information regarding the final FLSA rule is found on the Department of Labor’s website.