Ready? Or not? Thirty days until the new FLSA minimum salary rule becomes effective



October 31, 2016

Employment Law Alert

Author(s): Andrew B. Prescott, Stacie B. Collier, Jessica Schachter Jewell

Increased minimum salary requirement for white collar exempt employees of $913.00 per week ($47,476 per year) will become effective December 1, 2016.

Halloween has arrived; soon, the effective date for the new FLSA (Fair Labor Standards Act) minimum salary requirement will, too. As explained in our prior alert on the topic (“U.S. Department of Labor issues final regulations expanding overtime coverage,” May 10, 2016), the increased minimum salary requirement for white collar exempt employees of $913.00 per week ($47,476 per year) will become effective December 1, 2016. It appears that neither pending regulation nor litigation challenging the new regulation will delay the effective date. Some large private sector employers such as Wal-Mart have already announced increases to employee salaries well in advance of the December 1 deadline.

Employers who fail to get their FLSA house in order may be unable to ward off the specter of DOL investigations and lawsuits seeking unpaid overtime and double (i.e., liquidated) damages. What’s also scary is that some employers will increase their employees’ salaries to at least $913 without thinking about whether they properly classified the employees as exempt in the first place. Remember that the minimum salary is only one-third of the equation; employees must also meet the “salary basis” test and the applicable “duties” test. Increasing the salary of a misclassified employee to the new minimum only perpetuates a preexisting problem. Better to reexamine now the exempt status of employees under the new minimum and, if necessary, reclassify them as non-exempt. Keep in mind the spooky reality that courts interpret exemptions narrowly and put the burden on employers to prove that the exemptions apply.

Another potential skeleton in the closet is the highly compensated employee. In order to take advantage of the abbreviated duties tests for the major FLSA exemptions, the minimum annual salary for this employee must be at least $134,004 (up from $100,000 per year). Employers will be tricked into complacency if they do not confirm whether these higher compensated employees’ salaries are in compliance with the new rule.

For employees reclassified as non-exempt, employers need to make sure those employees and their supervisors understand the need to track and record accurately all-time worked and how to deal with potentially tricky working time issues arising from remote access to e-mail and other employer systems. State law wage and hour requirements such as mandated mealtimes also may warrant consideration when switching employees from exempt to non-exempt. A little preparation now will pay off when the witching hour strikes at midnight on November 30.

The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.

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