1. Final FLSA White Collar Exemption Rules Announced
The Department of Labor has announced the new salary threshold for certain employees to qualify as
exempt from minimum wage and overtime under the Fair Labor Standards Act’s White Collar Exemptions.
Effective December 1, 2016, the new minimum salary level will be $47,476 per year ($913 per week). Up
to 10% of this income may come in the form of non-discretionary bonuses, incentive pay, or commissions,
as long as that portion of the compensation is paid at least quarterly. In the event that an employee does
not earn enough in bonuses and commissions to meet the full minimum salary requirement, a catch-up
payment can be made by the employer once a quarter.
The minimum salary requirement applies to all white collar workers who are classified as exempt executive
or administrative employees, and to many who are classified as exempt professional employees. As
anticipated, the duties tests for the White Collar Exemptions have not changed.
Under the new rules, this salary threshold will increase every three years. It will be set at the 40th percentile
of weekly earnings among full-time salaried (not necessarily exempt) employees in the country’s lowest
income region – currently the South. It is expected that the next change, which will be effective January 1,
2020, will increase the minimum salary to approximately $51,168.
The new rule also increases the minimum salary threshold for the Highly Compensated Employee
(HCE) exemption from $100,000 per year to $134,004 per year. This exemption can be used when an
employee carries out a limited number of executive, administrative, or professional duties, but is very well-
compensated. The new rule sets the HCE threshold at the 90th percentile of all full-time salaried workers
nationally. This number will also increase every three years, and is expected to rise to approximately
$147,524 on January 1, 2020.
Some state laws create different minimum salary levels. When state laws differ from the FLSA, an employer
must comply with the standard most beneficial to employees. Come December 1, the federal minimum
salary level will be higher than any state-mandated minimum, and therefore must be followed.
In preparation for the new rule, we have created the following materials, all of which can be found in
Heartland’s HR Support Center:
FLSA Changes: Decision Making Guide
FLSA Changes: Implementation Guide
2 Minute HR trainings on the new rule
A guide to calculating overtime for non-exempt employees who receive non-discretionary bonuses
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2. What are the FLSA White Collar Exemptions?
With all the talk about the new white collar overtime exemptions, you may be wondering what these
exemptions are and whether they apply to your organization. In a nutshell, they pertain to whether certain
employees must be paid overtime rates for hours worked over 40 in a week. While most employees must be
paid at least minimum wage and time-and-a-half for overtime, some employees can be classified as exempt
from these requirements. The most common way to classify employees as exempt is with one of the “white
collar exemptions.”
Among these, the most commonly used white collar exemptions are the executive, administrative, and
professional exemptions. These may be applied when the position/employee passes three tests:
1. They perform non-manual work and their primary duties are executive, administrative, or professional.
2. They make a minimum salary of $455 per week, which equals $23,660 per year ($913 per week and
$47,476 per year beginning December)
3. They are paid on a salary basis, meaning they receive the same pay each week regardless of number
of hours worked, or the quantity or quality of their work.
Some employees whose duties qualify them for the professional exemption – bona fide teachers and
practicing doctor and lawyers – do not have to be paid a minimum salary, or on a salary basis; they only have
to pass the duties test. However, some states don’t allow this exception to the salary rules (e.g. California), so
employers should double check state law before taking any liberties with these types of employees.
Another way employees can be exempt is if they qualify as a highly compensated employee (HCE). This
exemption may be applied if the employee passes three different tests:
1. They perform non-manual work, and customarily and regularly perform at least one or more executive,
administrative, or professional duties.
2. They receive total compensation of at least $100,000 per year ($134,004 beginning December)
3. They make at least $455 per week, every week, on salary basis ($913 beginning December)
When would you want to use the HCE exemption?
Consider a CEO’s executive assistant making $125,000 per year. His primary duties include typing dictated
letters, making travel arrangements, placing phone calls, and party planning—none of which are exempt
duties. But he also manages two full-time administrative assistants; this responsibility doesn’t take up much
of his time, but it is something that he does regularly. Based on his job duties as a whole, he doesn’t pass
the test to be properly classified as an executive, but since he makes over $100,000 per year and performs
at least one executive duty on a regular basis, he can be properly classified as exempt as an HCE.
Keep in mind that classifying an employee as exempt is a benefit to the employer. You are never required
to classify an employee as exempt, and you may always pay them on an hourly basis, regardless of duties or
pay. You’ll just have to pay an overtime premium for hours worked over 40 in a week.
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