45 Days Until FLSA Overhaul Takes Effect

The Final Overtime Rule takes effect on December 1, 2016, and extends overtime protection to 4.2 million employees who are currently deemed exempt under the FLSA.  The Final Rule more than doubles the qualifying salary threshold for the Executive, Administrative or Professional (“EAP”) exemptions to overtime.  The Final Rule also updates the salary levels of employees deemed exempt under the Highly Compensate Employee (“HCE”) exemption to equal the 90^th percentile of full-time salaried workers nationally.

The Final Rule makes the following changes to the FLSA:

• Increases the salary requirement for the EAP exemptions from $455 to $913 per week, or $47,476 per year to reflect the 40^th percentile of earnings.
• Allows employers to use nondiscretionary bonuses, incentives and commissions to satisfy up to 10% of this new salary level.
• Increases the salary requirement for the HCE exemption from $100,000 per year to $134,004 per year, to reflect the 90^th percentile level previously set in the 2004 Rule.
• Automatically updates these salary thresholds every three years so they continue to reflect the fixed 40^th and 90^th

The Department of Labor (“DOL”) explained that updating the salary levels for the EAP exemptions is necessary because the current threshold of $455 per week, or $23,660 annually, is below the 2015 poverty line for a family of four.  The increased salary level of $913 per week, or $47,476 annually, equals the 40^th percentile of earnings of full-time salaried workers in the lowest-wage Census Region (currently the South).   Based on current projections, on January 1, 2020, the first automatic update will further raise salary levels to $984 per week ($51,168 annually) for the EAP exemptions and $147,524 annually for the HCE exemption.  In his Presidential Memorandum, President Obama emphasized that the FLSA overtime protections are a “linchpin of the middle class” and the failure to keep the salary levels of the exemptions up to date has left “millions of low-paid salaried workers without these basic protection.”

Staunch opposition to the Final Rule has been brought by a coalition of 21 states and over 50 trade groups, including the U.S. Chamber of Commerce, the National Association of Manufacturers and the National Federation of Independent Business.  The states and the business groups have filed two separate suits in Texas Federal Court to enjoin the implementation of the Final Rule, challenging the DOL’s authority to enact the Rule and claiming that it will result in devastating costs that will cripple small businesses and cause employee terminations.

On October 17, 2016, the business groups moved to consolidate the two cases.  U.S. District Judge Amos Mazzant has not ruled on the consolidation motion, but has set a hearing for November 16, 2016 for the states’ motion for a preliminary injunction.  U.S. Secretary of Labor Thomas Perez responded that the DOL is confident in the legality of the Final Rule because it is designed to restore the intent of the FLSA, stating “I look forward to vigorously defending our efforts to give more hardworking people a meaningful chance to get by.”