On May 18, 2016, the U.S. Department of Labor (DOL) released a final rule that revises the regulations governing the exemption of executive, administrative, and professional employees (“white-collar employees”) from the FLSA. Among other things, the rule significantly raises the standard salary level test for the exemption - from $455 per week ($23,660 per year) to $913 per week ($47,476 per year). According to the DOL, there is a misperception that the only way to handle employees who earn less than $47,476 is to make them hourly. In fact, employers have a wide range of options for responding to the change in salary level, and they can choose the one that works best for them.

1. After evaluation, no changes to pay or hours necessary. Many organizations have white-collar employees who satisfy one of the duties tests for exemption and earn between the old salary level ($455 per week) and the new salary level ($913 per week). Employers should evaluate all such categories of white-collar employees to determine which employees do not work more than 40 hours per workweek. The final rule will have no effect on these employees’ pay because they do not work any overtime even though they will become overtime-protected. They can continue to be paid a salary as before.

2. Raise salaries. Employers may choose to raise the salaries of employees who meet the duties tests if their salaries are close to the new salary level and they regularly work overtime, to at or above the salary level to maintain their exempt status.

3. Pay overtime above a salary. Employers can continue to pay employees a salary and pay overtime for hours in excess of 40 per week. Although the FLSA requires employers to keep records of how many hours overtime-eligible employees work, the law does not require that overtime-eligible workers be paid on an hourly basis. Rather, employers may continue to pay employees a salary covering a fixed number of hours, which could include hours above 40.

4. Reorganize workloads, adjust schedules, or spread work hours. Employers may wish to reorganize workload distributions or adjust employee schedules in order to comply with the final rule. Work assignments that are predictable could be assigned at the beginning of the workweek (rather than, for instance, late in the day on Friday for an employee who typically works Monday-Friday) in order to manage overtime hours. Or, when employees regularly perform duties outside of a 9-to-5 workday, organizations may consider adjusting those employees’ schedules to encompass when most of the work takes place so that they will not work more than 40 hours each workweek. To reduce or eliminate overtime hours, employers may decide to hire new employees or redistribute work hours in excess of 40 across current staff, such as by increasing the work hours of staff who work less than 40 hours per week.

5. Adjust wages. Employers can adjust the amount of an employee’s earnings to reallocate it between regular wages and overtime so that the total amount paid to the employee remains largely the same. Employers may not, however, reduce an employee’s hourly wage below the highest applicable minimum wage (federal, state, or local), or continually adjust wages each workweek in order to manipulate the regular rate. The employees’ hours worked must still be recorded, and overtime must be paid according to the actual number of hours worked each week.

Source: Guidance for Private Employers on Changes to the White Collar Exemptions in the Overtime Final Rule, issued May 18, 2016; https://www.dol.gov/whd/overtime/final2016/general-guidance.pdf.