New 2016 FLSA Rules Are Effective December 1, 2016

by Malak Kazan, CECP, CCP, CBP, GRP 19. May 2016 12:25

 

The final Fair Labor Standard Act (FLSA) rule changes were published this week and go into effect December 1, 2016.  ERI has been following these developments from the onset.  The new rules modify the definitions of white collar workers, expanding coverage of FLSA's minimum wage and overtime standards, introduce automatic increases to the federal salary and annual compensation thresholds, as well as provide guidance on inclusion of variable cash payments in meeting the salary thresholds.  The Department of Labor estimates the compensation for 4 million workers will be impacted by these changes. 

Let’s take a look at these highly anticipated final rules and highlight how they are different from current and initially proposed rules. 

Standard Salary Threshold

The standard threshold has doubled to $913 week, or $47,476 on a yearly basis, anchored to the lowest-wage Census Region, currently the South.  This number represents the 40th percentile earnings of full-time salaried workers.  The initial proposal anchored the standard salary threshold to the national level, which would have eliminated any advantages for companies in lower cost of labor geographies.  The percentile remained unchanged.

In determining compliance with this standard salary threshold, the final rule also confirmed that employers can include nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.  This refers to “metric-specific” or pay- for-performance incentive plans, which most organization are now incorporating into their total rewards programs. 

Annual Compensation Threshold

The highly compensated employees (HCE) total annual compensation remains anchored to the national full-time salaried workers 90th percentile, which is currently $134,004.  This final provision did not change from the initial proposed rule except the baseline data increase from $122,148 by 9.7%. 

Automatic Increases

Future automatic updates to the thresholds will now occur every three years, beginning on January 1, 2020.  This provision serves to automatically update to maintain the threshold levels at the 40th percentiles for standard salary and 90th percentile for the total annual compensation of HCEs.  Of the significant changes impacting HR and job analysis, this automatic updating mechanism is the most difficult to incorporate into business planning as the thresholds will be determined by an external agency.  ERI will be working on tools to help you be proactive on this provision.

These changes have significant compensation cost, as well as administrative and organization culture implications.  Here are some additional ERI posts with more helpful insight to FLSA:

FLSA and Job Analysis

Fair Labor Standards Act (FLSA) FAQs

Job Analysis and FLSA Executive Exemption Test

Effective HR leadership requires insightful and proactive solutions that combine internal and external realities coupled with reliable data and tools.  ERI compensation analytic solutions have and continue to be invaluable tools for HR and total rewards leaders in this regard.  ERI’s Occupational Assesor (OA) is an application with job content and rules mapped to FLSA requirements.  For more information about job analysis technology solutions for FLSA, call us today at 1-800-627-3697, and one of our best in class service team members will assist you.