On May 18, 2016, President Obama and Secretary Perez announced the publication of the Department of Labor’s final rule updating the overtime regulations, which will automatically extend overtime pay protections to over 4 million workers within the first year of implementation. These updates are commonly referred to as the “White Collar Exemption”. The following regulations are effective December 1, 2016.
At LSSK we’ve summarized the updated regulations, here is what you need to know:
There are 3 Basic Requirements for claiming the White Collar Exemption as of December 1, 2016:
- Salary Basis Test – Employee must be paid on a salary basis
- Standard Salary Level Test – Earn $913 per week (annual salary of$47,476). (Was $455 per week or $23,660 annually).
- Up to 10% of standard salary level can come from non-discretionary bonuses, incentive payment and commissions, paid at least quarterly.
- Exception to Salary Basis & Salary Level – Does not apply to doctors, lawyers, or teachers, as well as certain academic administrative personnel.
- Standard Duties Test
- Executive – Employee’s “primary duty” must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise (and managing 2 full time employees as well). Must have the authority to hire or fire other employees, or at least to have weighted input on employment status decisions.
- Administrative – Employee’s “primary duty” must include the exercise of discretion and independent judgement with respect to matters of significance. Must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers.
- Professional – Employee’s “primary duty” must be to perform work that either requires advanced knowledge in a field of science or learning, usually obtained through a degree, or that requires invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor.
- Fields of science or learning include law, medicine, theology, accounting, actuarial computation, engineering, architecture, teaching, various types of physical, chemical and biological sciences, pharmacy and other occupations that have a recognized professional status and are distinguishable from the mechanical arts or skilled trades where the knowledge could be of a fairly advanced type, but is not in a field of science or learning.
- Recognized field of artistic or creative endeavor include such fields as, for example, music, writing, acting and the graphic arts.
Highly Compensated Employees:
Highly compensated employees performing office or non-manual work and paid total annual compensation of $134,004 (increased from $100,000 as of December 1, 2016) or more (which must include at least $913 per week paid on a salary or fee basis) are exempt from the FLSA if they customarily and regularly perform at least one of the duties of an exempt executive, administrative or professional employee identified in the standard tests for exemption.
Automatic Updates Every 3 Years
As part of the regulation change, a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at designated percentiles and to ensure that they continue to provide useful and effective tests for exemption. The next salary and compensation level change will be in 2020.
If you have any questions about overtime regulations or exemptions, please contact your CPA. Lundy, Shacter, Shulman & Kaplan, P.A. assists clients across the United States from our offices in Plantation, FL and Greensboro, NC. We can handle everything for small businesses, individuals and families. Give us a call today at (954) 452-0100.