Beginning December 1, 2016, approximately 4 million Americans will qualify for overtime pay under new rules from the U.S. Department of Labor under the Fair Labor Standards Act (“FLSA”). Currently, the “white collar” exemption under FLSA for overtime pay requires that employees: (1) be paid on a salary basis, receiving a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (“salary basis test”); (2) be paid more than a specified salary threshold of $23,660, or $455 a week (“salary level test”); and (3) primarily perform certain executive, administrative, or professional duties as specified in DOL regulations (“duties test”). Now, rule changes influenced by the Obama administration are altering part (2) to increase the salary threshold to $47,476 or $913 a week, but are leaving parts (1) and (3) undisturbed.
The threshold will be automatically updated every three years to keep salaries in line with inflation. Starting in 2020, the threshold will be increased to match the 40th percentile of full-time salaried workers in the lowest-wage Census area, which in this case is currently the South. The Department of Labor estimates that in 2020, the salary threshold will increase to approximately $51,000 a year.