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May 20, 2016

New Fair Labor Standards Act Overtime Regulations

The United States Department of Labor ("USDOL") published the much anticipated final regulations updating the salary requirements necessary to maintain the overtime exemptions for executive, administrative and professional employees. The new regulations are effective December 1, 2016, giving employers approximately seven months to make decisions about how the new rules will affect their workplace.

The standard salary level under the new regulations will increase from $455.00 per week to $913.00 per week. This is the first update to the federal salary level requirement since August 2004, and will remain in place until January 1, 2020. Thereafter, there will be automatic updates to the salary amount that will occur every three years. The USDOL will publish future increases to the salary amount at least 150 days before their effective date. Thus, for long term planning purposes, employers should note that there will be automatic increases to the salary amount in 2020 and 2023.

In addition, the new regulation allows employers for the first time to use nondiscretionary incentive payments and bonuses (which include commissions) to satisfy 10% of the standard salary level. These payments may be tied to profitability and productivity. For example, these would include: (1) production bonuses for meeting certain production goals or quotas; (2) commission payments which are based on a fixed formula; and (3) retention bonuses. The regulations require that these payments be made at least on a quarterly basis, but employers may make the payments more often if they wish. By contract, a discretionary incentive or bonus payment occurs when the employer simply awards the employee a payment at the employer's sole discretion and not in accordance with any preannounced standards or written guidelines, such as a spontaneous reward for a specific act or an unannounced bonus payment not tied into any preannounced standards.

As you may know, meeting the salary level (and the proper payment of that salary) are only one component of establishing the "white collar" exemption under the Fair Labor Standards Act; the other being the duties assigned to the individual. The new regulations do not change the existing duties test.

Employers in New York will be required to provide new Wage Theft Prevention Act notices to any employees whose status will change from exempt to non-exempt. Employers who convert employees from exempt to non-exempt status must comply with applicable recordkeeping requirements including development and maintenance of time-recording records for employees who were previously treated as exempt. Employers should also review and update as necessary impacted job descriptions, and employment policies.

If you have questions regarding compliance with the new regulations, or you are unsure how they will impact your business, please call the labor and employment attorney at Barclay Damon with whom you regularly work, or any attorney in the Labor & Employment Practice Area.


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