Recently, the Department of Labor (DOL) released final rules increasing the minimum salary requirement to be paid to an employee who is exempted from overtime under the Fair Labor Standards Act (FLSA). These changes to the rules will be effective beginning December 1, 2016.
For administrative, executive, and professional (excluding teachers, academic administrative personnel, physicians, lawyers, judges, and outside sales workers) exemptions the minimum salary requirement is being increased to $913 per week (up from $455) or $47,476.00 annually (up from $ 23,660).
Certain bonuses and other incentive payments will now also be included to help employers meet these increased minimum salary requirement for the exemptions. Non-discretionary bonuses and incentive payments (including commissions) are forms of compensation promised to employees to induce them to work more efficiently or to remain with the company. Examples include bonuses for meeting set production goals, retention bonuses, and commission payments based on a fixed formula. Providing bonuses to the employee with the highest quarterly sales, highest customer satisfaction and least amount of complaints would likely also be examples of bonuses that qualify as non-discretionary.
By contrast, discretionary bonuses are those for which the decision to award the bonus and the payment amount is at the employer’s sole discretion and not in accordance with any pre-announced standards. An example would be an unannounced bonus or spontaneous reward for a specific act. Spontaneously deciding to reward employees with an end of the year or holiday bonus would likely also be considered a discretionary bonus which cannot be counted toward the minimum salary requirement.
The minimum salary requirement for the highly compensated employee exemption have also been increased to $134,004 (up from $100,000) in total annual compensation.
There will also be a mechanism in place to automatically adjust these minimum salary requirements every three years, beginning January 1, 2020 to ensure that they continue to provide useful and effective tests for the overtime exemptions.
Employers and employees should keep an eye out for more information on these changes in the coming months as the DOL plans to provide additional information prior to these changes becoming effective on December 1, 2016.