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Payroll Today

DOL releases final salary level requirement regs

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Alice Gilman

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in Payroll Today

On May 18, 2016, the Department of Labor (DOL) released its long awaiting, and much anxiety producing, final regulations on the salary amounts white-collar employees must earn to remain exempt under the Fair Labor Standards Act (FLSA). The final regs become effective Dec. 1, 2016.

Under the new regs, the “standard” salary amount non-highly compensated employees must earn increases to $913 a week ($47,476 annually), from $455 ($23,660 a year). The amount highly compensated employees must earn increases to $134,004 a year, from $100,000.

Key: These regs continue to exclude outside salespersons from the salary level requirement. Computer professionals, however, are covered under the new regs. These employees must earn at least $913 a week ($47,476 a year), or at least $27.63 an hour.

Show us the money

The DOL did not, as many commentators had anticipated, change the duties tests exempts must pass; those tests remain intact, at least for now. The DOL did, however, provide special transitional relief to certain providers of Medicaid-funded services for individuals with intellectual or developmental disabilities in residential homes and facilities with 15 or fewer beds. These employers now have until March 17, 2019, to comply.

The final regs set the salary level at the 40th percentile of earnings of full-time salaried employees in the lowest-wage Census Region, which is currently the South. For highly compensated employees, the salary level is based on the annual equivalent of the 90th percentile of full-time salaried employees nationally. In addition, the final regs reflect the DOL’s revised position regarding indexing of these salary amounts. Instead of annual indexing, adjustments will be made every three years. The first adjustment will occur for wages paid beginning Jan. 1, 2020.

The bite may not be as great as it seems, however. Reason: For the first time, the regs allow you to include up to 10% of nondiscretionary bonuses and incentive payments, such as commissions, as part of the salary earned by non-highly compensated employees. Under the 2004 revisions to the white-collar regulations, you can already include these payments in salary for highly compensated employees without the 10% cap.

For both non-highly compensated and highly compensated employees, incentive payments must be paid quarterly or more frequently; you may make a catch-up payment if the incentive pay falls a little short.

The following chart summarizes the major provisions of the final regs:

final regulations on salary amount for exempt status under the FLSA

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