Far-Reaching Changes Are On the Horizon, Part I

Exempt v. Nonexempt Criteria. The Department of Labor has issued some revised guidance regarding overtime classification standards under the Fair Labor Standards Act. The DOL expects that 11 million employees will be impacted by these changed regulations.

The standard salary level for workers to qualify as exempt employees not eligible for overtime pay under the Act, will rise from $455 per week (approximately $23,660 annually), to $970 per week (or $50,440 annually) in 2016. This increase will apply to the following “exempt” categories tests–executive, administrative, professional, and computer employees. Employees of educational establishments must meet this salary standard, as well, to be “exempt.”
Additionally, the DOL proposes to adjust the highly compensated employees’ compensation level to $122,148 annually. Currently, in order to come within the highly compensated employees’ exemption, an employee must earn at least $100,000.

The changes to the salary level test under the proposed rule mean that in order to receive overtime pay, an employee must earn less than $50,440 per year (as of 2016), rather than the current figure of $23,660. It is expected that the salary level threshold would be updated annually after 2016, possibly adjusted for inflation. Employers must keep in mind that earning above $50,440 annually, does not automatically classify an employee as exempt from mandatory overtime pay, as the duties tests still come into play. However, generally, the highly compensated employees may be considered exempt without regard to the duties test.

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