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Detroit-–-May 18, 2016–This morning the Department of Labor issued long-awaited regulations increasing the salary level test for workers to qualify under the executive, administrative, and professional worker (EAP) overtime exemptions to the Fair Labor Standards Act (FLSA). According to Terry Bonnette, a partner with Detroit-based management side labor and employment law firm Nemeth Law, P.C., the primary purpose of the new OT regulations is to increase the salary level test required for workers to qualify under these exemptions.
“Currently, the weekly salary level is $455 ($23,660 annually). However, the new regulations increase that amount to $913 per week ($47,476 annually) beginning in December 1, 2016,” Bonnette said. “The regulations also specify that the salary level test will increase every three years, beginning on January 1, 2020.”
The regulations focus primarily on updating the salary and compensation levels needed for EAP workers to be exempt. Specifically, the regulations:
1. Set the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South, which is $913 per week or $47,476 annually for a full-year worker;
2. Set the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally, which is $134,004;
3. Establish a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption;
4. Amend the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level; and
5. Do not make any changes to the duties tests.
“Employers should immediately review their compensation plans to determine whether currently exempt employees will still qualify for these exemptions when the salary level increases,” Bonnette said.
Bonnette also reviewed that, in order for a worker to qualify under these exemptions the DOL generally requires that: (1) the employee be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (“salary basis test”); (2) the amount of salary paid must meet a minimum specified amount (“salary level test”); and (3) the employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations (“duties test”).
About Nemeth Law, P.C.
Nemeth Law specializes in arbitration, mediation, workplace investigations, employment litigation, traditional labor law and management consultation/training for private and public sector employers. It is the largest woman-owned law firm in Michigan to exclusively represent management in the prevention, resolution and litigation of labor and employment disputes.