The press has been filled with stories about the new Fair Labor Standards Act (FLSA) regulations which raise the minimum salary level required for employees to be exempt from overtime pay. Specifically, the new regulations — currently set to take effect on December 1, 2016 — raise the minimum salary level required for exempt employees under the executive, administrative and professional exemptions from $455 per week to $913 per week, or from roughly $23,660 annually to $47,456 annually. Often overlooked, however, is the fact that the new regulations also significantly affect the “highly compensated employee” (“HCE”) exemption, as well.
Currently, an employee will qualify for the HCE exemption if he or she is paid at least $455 per week, receives total annual compensation of at least $100,000 and meets a minimal duties test. The new regulations raise the required weekly salary level for the HCE exemption to $913 (like the other white collar exemptions) but also raise the required amount of total annual compensation for the HCE exemption to a figure equal to the “90th percentile of full-time nonhourly workers nationally.” When the new regulations go into effect on December 1, 2016, that figure will be$134,004 and (like the statutory minimum required salary) that figure will be updated every three years.
To moderate some of the effect of this total salary level increase on most exempt employees, the Department of Labor allows 10% of the $913 per week (that must be paid on a salary basis to qualify for most of the white collar FLSA exemptions) to be paid through nondiscretionary bonuses, incentives or commissions. However, this allowance does not apply to the HCE exemption. To satisfy the HCE exemption beginning December 1, 2016, an employee must be paid at least the statutory minimum of $913 per week on a salary or fee basis but the employer cannot use nondiscretionary bonuses, incentives or commissions to make up any of that week’s amount. However, the employer may use such alternative, non-salary forms of payment to satisfy the remainder of the total annual compensation requirement – the requirement that the HCE receive total annual compensation of at least $134,004.
Also, for employers who decide to not raise HCE salaries to the new $134,000 requirement, those employees’ job duties should be reevaluated to ensure that they can meet the more stringent duties test required for one of the other white collar exemptions. Under the HCE exemption, employees are only required to customarily and regularly perform one or more of the duties listed for the administrative, executive or professional exemptions. So, employees currently classified as exempt HCEs may not automatically be exempt under the other white collar exemptions and must be evaluated on a case by case basis.
Confused? Worried? Think you’ve got it but just not positive? Want to go over this and all the other changes to the FLSA exemptions coming before December 1? Now is your chance! Come learn all about the changes in “Time’s Up! A Practical Guide for Implementing the New FLSA Overtime Regulations” as part of Troutman Sanders LLP’s Annual Labor & Employment seminar on November 10, 2016 from 8:00am-2:00pm at the Crowne Plaza Hotel (located at 590 West Peachtree St., behind our offices in the Bank of America Building). Register now for this FREE seminar by clicking here. Hope to see you there!