Rose Report: Issue 29

Is Your Company Ready for the Final FLSA White Collar Exemption Rule?

On December 1, 2016, the Department of Labor’s (DOL) Final Fair Labor Standards Act (FLSA) White Collar Exemption Rule will come into effect. But do you know what this means for your business? What about your options for handling the payroll modifications based on the decision? We’ve broken down the changes the Final Rule will bring in a series of questions, answers and information about next steps your company can take.

Who counts as white collar?

The white collar designation includes executive, administrative and professional employees. The DOL’s Fact Sheet #17A provides further details on how these roles are defined.

How is the decision relevant for my business?

Pay special attention to the rule if you have salaried employees who earn less than $913 per week and are currently classified as exempt from the minimum wage and FLSA overtime requirements.

When a business’ payroll includes doctors, lawyers, educators, government employees, motion picture employees, and employees in American Samoa and Puerto Rico, they also need to pay special attention, as they may be subject to exceptions and variations.

When do I classify an employee as exempt from minimum wage and overtime pay requirements under the FLSA White Collar Rule?

Generally, the employee must perform certain duties consistent with their exempt status and be paid on a salaried basis—this salary can’t fall below the minimum wage documented in the Final Rule.

What are the biggest changes based on this rule?

  • Minimum salary requirements will grow from $455 to $913 a week.
  • Annual minimum salary requirements for highly compensated employees will increase from $100,000 to $134,004.
  • A maximum of 10 percent of nondiscretionary bonuses and similar supplementary earnings, such as commissions, may be applied towards the annual salary requirement.
  • The increase in labor costs will lead to additional indirect costs, like increased employment taxes.

If my business is affected by this rule, what are my options?

Companies that are affected by the rule have several options to consider. One approach is reclassifying employees as hourly, nonexempt. This option means employers must still pay overtime. Another is to reclassify employees as salaried, exempt. This choice also requires employers to pay overtime, but allows for the possibility of using the FLSA fluctuating work week. Finally, companies can continue classifying employees as exempt by raising salaries to the minimum level outlined by the Final Rule. In this case, overtime is avoided.

When the DOL makes changes influencing your business’ fiscal decisions, there isn’t a “one size fits all” solution. Our biggest recommendation is for businesses—and their accounting professionals—to review salary levels, compensation and the impact of this rule proactively, before the changes take place. We also suggest communicating openly with affected employees about potential changes and why they are happening. Learn more by visiting the DOL’s guidelines.


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