Background:
Under the Federal wage and hour law, the Fair Labor Standards Act (FLSA), non-exempt workers are required to be paid overtime pay – 1.5 times their regular rate – for all hours worked in excess of forty (40) in a week There are exemptions to this requirement. The most common exemptions are the “white collar” exemptions because they primarily apply to executives, administrative, and professional employees.

In order to be an exempt white collar worker, the employee must satisfy three requirements: (1) they must perform duties that are specific to each exemption (for example, the executive exemption), (2) they must be paid on a salary basis, meaning that they receive their full salary in any week in which they work, with very few exceptions, and (3) their salary must be at least the minimum level.

The New Regulations:
It is this last requirement that has been changed by the new regulations. The old minimum, in place since 2004, was $455 per week, or about $23,660 per year or roughly $11.38 per hour.

The new regulations increase this new minimum to $913 per week, or about $47,476 per year. This translates to about $22.84 per hour. This annual amount will also be adjusted every three years, based on the 40th percentile of the weekly earnings for full time salaried workers in the lowest wage Census Region.

This means that most salaried workers whose salary was between these levels should expect a change in their compensation system, especially if they work over 40 hours per week. Employers might move such workers to a non-exempt hourly status, increase their salary to maintain exempt status, or make other changes. Under the new regulations, up to 10% of the salary amount can come from non-discretionary bonus, incentive payments, and commissions, as long as those payments are made at least quarterly.

Another exempt classification is “Highly Compensated Employees.” Previously, the salary test for these employees was $100,00 per year. The new annual salary requirement is $134,000, and their weekly salary must be at least the new minimum as well. This annual amount will also be adjusted every three years, based on the 90th percentile nationally of salaried workers. These workers must also perform exempt duties.

Workers currently paid on an hourly basis are not impacted by the new regulations.

In addition to these federal regulations, many states, including Colorado, have their own unique wage and hour rules. In Colorado, for example, the minimum wage is higher than the federal standard. Also, for employees in certain industries, overtime pay is required after 12 hours in a day, as opposed to only hours over 40 in a week. Colorado has many of the same exemptions as the FLSA, but whatever law provides the most benefit to the worker is the law that must be followed, and so these new FLSA salary levels will benefit Colorado workers as well.

The new regulations go into effect December 1, 2016. They are expected to automatically adjust every three years, based on federal statistics about wages for salaried workers, so that the new minimum stays at the 40th percentile of the lowest national region.

Workers and employers should expect a lot of media attention to this news over the next few weeks, and then again around the December 1, 2016 effective date. In the meantime, expect companies to spend a lot of time and effort analyzing their workforce, including the compensation and hours worked of all employees, to determine how to adjust to these new requirements.

Sherman & Howard will present a webinar on this topic in early June, so stay tuned for more insights.

Now is the time to evaluate your wellness program for compliance with these regulations.