Robinson Donovan, P.C., Urges Employers to Prepare for Changes to White Collar Exemptions

Robinson Donovan, P.C., a full-service law firm trusted by generations to represent individual and business clients throughout Massachusetts and New England, recommends that employers start working with employment counsel and accounting staff now to analyze how amendments to the regulations governing the Fair Labor Standards Act (FLSA) will impact businesses.  On May 18, 2016, the Department of Labor announced a Final Rule to update the regulations.

The FLSA provides for certain exemptions from minimum wage and overtime for executives, supervisors, administrative employees and professionals. These are commonly referred to as “white collar” exemptions. Employers usually pay exempt employees a certain agreed upon salary amount. Currently, the minimum salary basis for exempt employees is $455 per week or $23,660 per year. The Final Rule increases this threshold to $913 per week, or $47,476 per year, an amount that doubles the minimum salary requirement. The immediate effect of these changes is that employees will no longer be considered exempt from minimum wage overtime unless they earn at least $47,476 annually.  The Final Rule also includes changes to how nondiscretionary bonuses and incentive payments (including commissions) are used to calculate the standard salary level.

The effective date of the Final Rule is December 1, 2016.  Thereafter, automatic updates to those thresholds will occur every three years beginning on January 1, 2020.

With the announcement of these key provisions to the Final Rule, employers should prepare today for possible significant changes to how they compensate employees.

Employers will have to decide how to best approach these changes for their particular businesses. Some employers may choose to significantly increase salaries to maintain exempt status, reclassify employees to nonexempt status, change job duties, restructure bonuses and incentive pay, and change schedule requirements to eliminate overtime. Additionally, employers must manage employee’s reactions to these significant changes.

“Employment law is always evolving, and it is important for employers to start planning now for the impact that these amendments will have on their business,” said Attorney Patricia Rapinchuk. “The Department of Labor will strictly enforce these new regulations, and prudent employers should take steps to avoid finding themselves tangled in costly agency investigations or even litigation.”