ERC held an FLSA Update overview and Q&A event with the U.S. Department of Labor (DOL). Joann Moriarty, from the DOL’s Wage & Hour Division, gave a very thorough and detailed presentation addressing some of the questions HR professionals have about the upcoming FLSA change. Here is a quick recap of what was presented and discussed:
FLSA—Fair Labor Standards Act
Changes in the Overtime Rule
- Salary Level Increases
- Nondiscretionary Bonuses
- Automatic Updates
The Final Rule updates the standard salary level and the total annual compensation required for the exemption of highly compensated employees (HCEs). It also allows employers to include nondiscretionary bonuses (including commissions) to satisfy a portion of the standard salary level. Another change is that it automatically updates the standard salary level and the highly compensated employee annual compensation level every three years.
For most employees, the minimum standard salary level required for exemption has moved up to $913 per week from the current $455 per week standard.
The highly compensated employee (HCE) is currently at $100,000 per year and will be moved up to $134,004 as of December 1, 2016.
Discretionary bonuses (bonuses that are generally paid without prior promise or announcement at an amount left up to the employer), cannot be used to satisfy any portion of the standard salary level.
Nondiscretionary bonuses (commissions and incentive payments promised in advance to employees), may be used to satisfy up to 10% of the standard salary level. Payments must be paid on a quarterly or more frequent basis.
The new rule includes an automatic updating mechanism. “Beginning January 1, 2020, and every three years thereafter, the standard salary level as well as the special salary levels and the HCE total annual compensation requirement will be automatically updated.”
Regularly and automatically updating the salary and compensation levels is designed to ensure that the levels continue to work effectively with the standard and HCE duties test.
Salary Basis Test
To meet the salary basis test, an employee must regularly receive a predetermined amount of compensation each pay period which cannot be reduced by variations in the quality or quantity of work. However, employees don’t have to be paid for weeks in which no work is performed.
In general, the salary basis test requires that the employees must be paid the full salary for any week in which the employee performs any work.
Salary level and salary basis tests do not apply to:
- Outside sales employees
- Certain computer-related occupations paid at least $27.63/hr.
Other Topics Discussed:
- Catch-up payments
- White-collar exemptions
- Exemption tests
- HCE test
- Salary basis test
- Deductions (permitted and improper)
- Clearly communicated policies
- Hourly, daily, or shift basis employees
- Fee basis employees
- Executive duties test
- Administrative duties
- Learned professional duties
- Creative professional duties