FLSA Changes: FAQ

The Department of Labor has released their final rule to increase the minimum salary for exempt employees.

What are the new minimum salary levels, and when will they go up next?
Under the rule, exempt executive, professional, administrative, and computer employees must be paid at least $684 per week ($35,538 annual), on a salary basis.

Employees who are exempt under the Highly Compensated Employee (HCE) exemption would need to be paid at least $107,432 per year. The HCE exemption is an option available for employees who don’t meet the full duties test to be an exempt executive, administrative, or professional employee, but are allowed to be classified as exempt because they are paid very well. However, this classification is not allowed in a number of states, including California, Oregon, and Washington. Most employers will never use this exemption.

Can a part-time employee be exempt?
The salary threshold does not fluctuate based on the number of hours worked by an employee. They also must be paid on a salary basis, meaning their pay doesn’t fluctuate based on number of hours worked or the quantity or quality of their work. Finally, they must also pass the duties test for at least one of the FLSA’s exemption categories.

What’s the difference between a non-discretionary and discretionary bonus?
The FLSA defines non-discretionary bonuses as those that are announced to employees to encourage them to work more steadily, rapidly or efficiently, and bonuses designed to encourage employees to remain with an organization. If there is an established set of criteria that an employee must meet, and the bonus is guaranteed to be earned once those criteria are met, the bonus will be considered non-discretionary. All non-discretionary bonuses must be included in the regular rate of pay and will impact the overtime rate when they are issued in the same workweek in which overtime is earned.

Discretionary bonuses, however, may be excluded from the regular rate of pay and overtime calculations. A discretionary bonus can be given to an employee for any reason or no reason at all. Generally, they’re given out of appreciation, loyalty, or good service. While employees may have a sense that they might get such a bonus, they are neither announced nor guaranteed to employees ahead of time.

Can non-discretionary bonuses and commissions count towards the minimum salary threshold?
Under the proposed rule, non-discretionary bonuses, incentive payments, and commissions (collectively, “incentive pay”) may account for up to 10% of the total for executive, administrative, professional, and computer employees, so long as they are paid out on at least an annual basis. Incentive pay can account for the difference between $35,568 per year and the total pay of someone exempt as an HCE, but may not cause a reduction in their $684 per week that is paid on a salary or fee basis.

Does this change even apply to me?
Almost certainly. There are two ways in which employees can be covered by the FLSA. One or both will apply to almost every employee in the country.

The first kind of coverage is called “enterprise coverage.” This applies when an employee works for an employer who has an annual dollar volume of cash sales or business done of $500,000 or more. It also applies if the employer is a hospital, business providing medical or nursing care for residents, school or preschool, or government agency, regardless of the amount of sales or business done.

The second type of cover is called “individual coverage.” Even when there is no enterprise coverage, the FLSA will cover individuals engaged in interstate commerce. If an employee places telephone calls to another state, sends or receives out-of-state shipments, processes credit cards, debit cards, or personal checks, or partakes in any number of other basic business activities, they will qualify for individual coverage.

That said, California and New York (and soon Washington) already have laws in place that make the minimum salary for exempt white collar employees higher than these proposed thresholds. As employers must follow the law that is more beneficial to employees, the new proposed federal minimums would not affect employers in these states.