On May 18, 2016, the Department of Labor (DOL) published revisions to the federal overtime regulations, with a specific focus on updating the salary and compensation levels that are necessary to exempt executive, administrative, and professional (EAP) employees and highly-compensated employees from overtime requirements. The new regulations do not alter the exemption requirements that currently apply to outside salespersons.
Under the current federal overtime regulations, in order to be exempt from overtime requirements, an EAP employee must be compensated at a standard salary rate of at least $455 per week ($23,660 annually), and must meet certain other requirements regarding their duties. The new regulations increase this standard salary rate to $913 per week ($47,476 annually). In other words, the new regulations mandate that in order to be exempt from overtime requirements, an EAP employee must receive approximately twice the salary that he or she is required to receive under the current regulations. The new regulations do not alter the duties test component of the overtime exemption.
With respect to highly-compensated employees, the current regulations exempt them from overtime requirements if they receive a total annual compensation of at least $100,000 (and meets certain duty requirements that are not altered by the new regulations). The new regulations increase this compensation requirement to $134,004 per year. In addition, the new regulations require that an exempt highly-compensated employee must receive at least the new standard salary rate (i.e., $913 per week) on a salary or fee basis. The new regulations further provide that if the highly-compensated employee’s total annual compensation does not meet the minimum compensation requirement that the new regulations set at $134,004, in the last pay period of the 52-week period, the employer may, during the last pay period or within one month after the end of that 52-week period, make one final payment to the highly-compensated employee in order to meet the required compensation level.
With respect to both EAP and highly-compensated employees, the new regulations provide that these salary and compensation levels will be adjusted every three years beginning on January 1, 2020.
The new regulations further provide that employers will be able to use nondiscretionary bonus or incentive payments (including commissions) to satisfy up to 10% of the standard salary rate requirements for EAP employees described above, provided that such nondiscretionary bonuses or incentives are paid at least quarterly. If, by the last pay period of the quarter, an EAP employee’s weekly salary plus nondiscretionary bonus or incentive payments does not equal 13 times the new weekly standard salary rate (i.e., $913 per week, subject to the three-year adjustment rules), the employer may make one final payment sufficient to achieve the required amount no later than the next pay period after the end of the quarter in order to keep the EAP employee exempt from overtime requirements. This provision does not apply to highly-compensated employees.
Finally, the new regulations clarify that an employer may provide an exempt employee with additional compensation without losing the exemption or violating the salary basis provisions, provided that the employee is guaranteed to receive at least the minimum weekly-required standard salary rate.
The new regulations take effect on December 1, 2016.