Employers Beware:  New, Much Higher, Minimum Salary Requirement for “Exempt” Employee Status Under Federal Law

By Dan Block

The U.S. Department of Labor has issued its final rule setting a much higher minimum salary requirement under the Fair Labor Standards Act (“FLSA”) for an employee to qualify as being exempt from minimum wage and overtime.

The FLSA applies to businesses and other organizations meeting a minimum annual dollar volume of sales or business done, or organizations providing specified services.  It also applies to employees engaged in interstate commerce.  Therefore, most employees have the protection of the FLSA.

The New Minimum Salary Level

The new minimum salary level is, with some exceptions, a requirement for the “executive employees,” “administrative employees,” “professional employees,” and “computer employees” exemptions.

Under the current Department of Labor rule, the minimum salary required for the “salary basis” test is $455 per week, or $23,660 per year.

Under the revised rule, the minimum salary required for the “salary basis” test will be $913 per week, or $47,476 per year.

The revised rule will be effective on December 1, 2016.

That minimum salary amount will be adjusted every three years on January 1st, beginning on January 1, 2020, so as to keep that minimum salary amount at the 40th percentile of weekly earnings of full-time, non-hourly, workers in the lowest-wage Census Region in the second quarter of the preceding year.

Raise an Employee’s Salary or Convert the Employee to Non-Exempt Status?

Employers with an employee currently being paid a salary of less than $913 per week or $47,476 per year, who is considered to be exempt, and whose pay must at least equal the minimum salary under the applicable exemption, will have to make the following decision by December 1st of this year:  Whether to (a) raise the employee’s salary up to at least the new minimum salary level; or (b) no longer treat the employee as exempt.

If the employer decides not to raise the employee’s salary to at least the new minimum salary level, the employer will have to pay the employee the overtime rate (one and one-half times the “regular rate” of pay) if the employee works overtime.

For employees who will go from being exempt to not being exempt, the employer could try to calculate an hourly pay rate that would result in the employee likely receiving about the same total annual compensation based on the expected hours at regular pay, and at overtime pay, the employee will work during the upcoming year.

Or, the employer could decide to continue to pay the now non-exempt employee on a salary below the minimum salary level, and pay the employee the overtime rate when applicable.  In that situation, the salary is converted to a regular hourly rate to determine the overtime rate.

The “Regular Rate” of Pay

Employers deciding to create an hourly wage rate for their formerly exempt employees, or to pay non-exempt employees a salary below the minimum salary level, need to be familiar with the “regular rate” of pay rules.  The regular rate of pay is not limited to wages or salary.  Among other amounts, it includes non-discretionary bonuses; commissions; and the cost of employer provided goods or facilities regarded as wages, such as lodging.

For more information about the changes in the rule for an employee to qualify as exempt under the FLSA, or otherwise related to the exemptions from minimum wage and overtime, contact Dan Block at Robinson Waters & O’Dorisio, P.C., at 303-297-2600 or at dblock@rwolaw.com.

The information contained in this article is for informational purposes only, and it does not constitute legal advice for any specific situation.  The invitation to contact an attorney at Robinson Waters & O’Dorisio, P.C. is not intended as a solicitation in any jurisdiction in which that attorney is not licensed to practice law.