On May 18, the U.S. Department of Labor (DOL) announced the release of its final rules that update the minimum salary for executive, administrative, and professional (EAP) employees to be classified as exempt under the federal Fair Labor Standards Act (FLSA) overtime regulations. This update will automatically extend overtime pay to over 4 million workers within the first year of implementation. Two key provisions of the final rules include:
- The minimum EAP salary level will be equal to the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, which is currently the South. Under this new approach, the minimum EAP salary will increase from its current $455 weekly/$23,660 annual amount to $913 per week or $47,476 annually for a full-year worker.
- The minimum EAP salary will also be subject to automatic updating every three years to maintain the levels at the above percentiles.
To help meet the new, higher EAP salary requirement, the Final Rule further amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the minimum EAP salary.
The EAP minimum salary will continue to not apply to some professional employees consistent with prior law. EAP employees who are not required to be paid the minimum salary include lawyers and doctors. For elementary, secondary, and post-secondary educational establishments, the minimum salary is also inapplicable to “teachers.” In addition, administrative employees of educational establishments whose job duties are “directly related to academic instruction or training” may be paid either the new minimum salary or the entrance salary for teachers at the educational establishment.
The effective date of the final rules is December 1, 2016. The first automatic three-year update to the minimum EAP salary will be January 1, 2020.
In conjunction with announcing its final rules, the DOL has also released guidance for many different types of employers, including private businesses, local governments, and higher education institutions. The DOL’s guidance can be accessed on its website.