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What Every Nonprofit Should Know About the Long-Awaited Arrival of the New FLSA Exemption Rules

Guest post by Melody Rayl, Attorney at Fisher & Phillips LLP. Melody was a panelist at our recent program covering trends in human resources.

Earlier this week, the U.S. Department of Labor (DOL) finally released the long-awaited revised regulations affecting certain kinds of employees who may be treated as exempt from the federal Fair Labor Standards Act’s (FLSA) overtime and minimum-wage requirements.  The final version of the new regulations will be published officially on May 23, 2016.

What Has Changed?

In short, the following changes will be made with respect to the DOL’s requirements for employees to be treated as exempt from the FLSA under any one of a handful of what are commonly referred to as the “white collar” exemptions contained in Section 13(a)(1) of the FLSA – executive, administrative, professional, computer employees and highly compensated employees:

  • The minimum salary threshold is increasing from $455/week to $913/week, which annualizes to $47,476.  DOL says the new figure is set at the 40th percentile of “earnings of full-time salaried workers” in the lowest-wage Census region (currently the South).  Keep in mind this new threshold must be met every pay period – not just on a total annual salary basis.
  • This new minimum salary amount will be automatically “updated” every three years, beginning on January 1, 2020, to adjust for economic changes.  These updates will be announced by the DOL 150 days in advance of implementation.
  • Employers may satisfy up to 10% of this new salary threshold through non-discretionary bonuses and other incentive payments, including commissions, provided that the payments are made at least quarterly. 
  • The annual compensation threshold for an employee to be considered exempt as a “highly compensated employee” will increase from $100,000 to $134,004.  The DOL says this figure is set at the 90th percentile of “earnings of full-time salaried workers” nationally.
  • No changes were made to requirements related to the kinds or amounts of work necessary for any of the exemptions, and no changes were made to bring those employees who have not been subject to the salary threshold within the fold – teachers, lawyers and doctors for example. 
These new rules will become effective on December 1, 2016, which provides ample time for employers to conduct a self-audit and bring all employees into compliance.  By that time, you must have either done what is necessary to continue to rely upon one or more of these exemptions as to each affected employee, or you must forego exempt status as to any employee who no longer satisfies all of the requirements.

What Should You Do Now?

While there may be some action taken in Congress or in the courts to stop these changes, you should assume for the time being that the new requirements will take effect as scheduled.  Here are some action steps you should consider taking now:

  • Analyze whether your non-profit organization or your individual employees are covered by the FLSA.  Generally speaking, your organization (and hence all of your employees) is covered if you have annual gross sales in excess of $500,000, you are engaged in the operation of a hospital, care facility or school, or you are a public agency.  In the event your organization is not covered under the FLSA, your individual employees may still be covered if they are engaged in interstate commerce – which is likely given the bi-state nature of Kansas City business.  It is highly probable that your employees are covered under the FLSA – even as a non-profit.  However, if you are in doubt, you should check with the DOL or legal counsel to be sure.
  • If you are treating employees as exempt under one or more of the “white collar” exemptions, analyze whether the duties requirements you have been relying on are actually met.
  • Evaluate what might be changed about the duties assigned to one or more jobs or consider the possible application of alternative FLSA exemptions so that your incumbent exempt employees may be treated as exempt going forward.
  • Determine which of the employees you are now properly treating as exempt will no longer meet the salary requirements when the new regulations go into effect.
  • Develop FLSA-compliant pay plans for employees who have been incorrectly treated as exempt or who have been properly treated as exempt in the past, but who no longer will be under the new regulations.
If you have any questions about these new regulations or how they might affect your non-profit organization, contact the DOL directly for advice or obtain the assistance of legal counsel to help you work through any issues.  Simply ignoring the requirements of the FLSA could land your organization in hot water with the DOL or on the wrong end of a wage and hour lawsuit, either of which could have dire consequences for your bottom line.