A final rule, effective December 1, 2016, updates the regulations governing which executive, administrative, and professional employees (white collar workers) are entitled to the minimum wage and overtime pay protections of the federal Fair Labor Standards Act (FLSA).
The current federal rules provide an exemption from both the FLSA minimum wage and overtime pay requirements for bona fide executive, administrative, and professional employees who meet certain tests regarding their job duties and who are paid on a salary basis at not less than $455 per week ($23,660 per year). “Highly-compensated employees” (HCEs) who are paid total annual compensation of $100,000 or more and meet certain other conditions are also deemed exempt.
The final rule focuses primarily on updating the salary and compensation levels needed for executive, administrative, and professional workers to be exempt. No changes are being made to the current job duties tests. In particular, the final rule:
- Raises the salary threshold from $455 a week to $913 per week (or $47,476 annually) for a full-year worker;
- Increases the HCE total annual compensation level to $134,004 annually;
- Establishes a mechanism for automatically updating the salary and compensation levels every 3 years, beginning on January 1, 2020; and
- Amends the regulations to allow employers to use nondiscretionary bonuses, incentives, and commissions to satisfy up to 10% of the new standard salary level, so long as employers pay those amounts on a quarterly or more frequent basis.
Note: When both the FLSA and a state law apply, the employee is entitled to the most favorable provisions of each law.
Our section on the Fair Labor Standards Act features additional information on exemptions from the law’s minimum wage and overtime requirements.
Please Note: The information and materials herein are provided for general information purposes only and are not intended to constitute legal or other advice or opinions on any specific matters and are not intended to replace the advice of a qualified attorney, plan provider or other professional advisor. This information has been taken from sources which we believe to be reliable, but there is no guarantee as to its accuracy. In accordance with IRS Circular 230, this communication is not intended or written to be used, and cannot be used as or considered a ‘covered opinion’ or other written tax advice and should not be relied upon for any purpose other than its intended purpose.
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