U.S. Department of Labor Releases Final Overtime Rules

On May 18, 2016, the U.S. Department of Labor released the final rules updating the salary and compensation levels applicable to the exemptions from minimum wage and overtime pay for executive, administrative, professional, computer, and highly compensated employees under the federal Fair Labor Standards Act (“FLSA”). These exemptions are frequently referred to as the “EAP” or “white collar” exemptions. The final rules will become effective on December 1, 2016.

The final rules update the salary and compensation levels needed to qualify as exempt as follows:

  • Raise the standard salary needed to qualify for the executive, administrative, professional, and computer employee exemptions from $455 per week ($23,660 per year) to $913 per week ($47,476 per year);
  • Raise the total annual compensation requirement for highly compensated employees from $100,000 per year to $134,004 per year;
  • Establish a process to automatically update the salary and compensation levels every three years beginning January 1, 2020; and
  • 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.

Academic administrative employees of “educational establishments” (i.e., an elementary or secondary school system, an institution of higher education or other educational institution) continue to be exempt from FLSA minimum wage and overtime rules if their salaries equal either the standard salary (now raised to $913 per week) or a salary equal to the entrance salary for teachers employed by the educational establishment (even if the salary is less than $913 per week).

As before, the term “academic administrative employees” includes superintendents, principals and vice-principals,  academic counselors and advisors, and other employees with similar responsibilities, but does not include employees whose work relates to general business operations, building management and maintenance, or the health of students and staff (such as lunch room managers).  Additionally, bona fide teachers remain exempt from the FLSA minimum wage and overtime rules regardless of the amount of their salary, so the final rules do not affect them.

The final FLSA regulations do not change the requirement that employees must perform certain duties and responsibilities to qualify for the white collar exemptions in addition to being paid at or above the salary threshold. The Illinois Minimum Wage Law adopts the salary thresholds and exemptions in the FLSA regulations but with some differences as to the specific duties the employee must perform to qualify as exempt. Accordingly, it is important to consider both the FLSA and the Illinois Minimum Wage Law when reviewing exempt positions.

The changes made by the U.S. Department of Labor’s final rules will directly impact local governments by potentially entitling previously exempt employees to overtime pay. Employers should review their exempt positions as soon as possible to determine which positions may no longer be exempt under the final rules and to determine how to adjust their operations to minimize the impact of the final rules in advance of the December 1, 2016, effective date.

Contact Heather Brickman or Chris Hoffman with your FLSA inquires.

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