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FLSA Changes: FAQs

The new FLSA rules go into effect December 1, 2016. Here are some common questions we’ve received.

What are the new minimum salary levels, and when will they go up next?

As of December 1, 2016, most exempt executive, administrative, professional, and computer employees need to be paid at least $913 per week ($47,476 per year).

Also as of December 1, employees who are exempt under the Highly Compensated Employee (HCE)* exemption will need to be paid at least $134,004 per year.

The next increase (after the one next month) will be on January 1, 2020. Current projections estimate that the minimum for most white collar employees will increase to $51,168, while the minimum for employees who are exempt under the HCE exemption will increase to $147,524.

*The HCE exemption is an option available for lower level employees who are paid a very high salary. It 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. To qualify as exempt, an employee must make $47,476 per year and at least $913 per week—every week—no matter how many hours the employee works. 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 nondiscretionary 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?

Up to 10% of the minimum salary threshold—$4,747—may come from non-discretionary bonuses, commissions, or other incentive pay. These payments must be made on at least a quarterly basis, and if the employee does not earn enough of this incentive pay to be on track to reach the exempt salary threshold, the employer must pay the difference to keep the employee’s exemption intact. This “catch-up payment,” as the DOL calls it, must be made within one pay period. Note that employees exempt under the Outside Sales Employee exemption (which is narrow) are not subject to the minimum salary requirement, so this is just for otherwise exempt administrative, executive, professional, and computer employees who also earn commissions.

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.