New Rules Impacting the FLSA White Collar Exemption Requirements: General Guidance and Specific Considerations for Institutions of Higher Education

By Gina Anton

Overview of Revisions

On May 18, 2016, the United States Department of Labor (“DOL”) announced its Final Rule updating the regulations that govern the exemption of executive, administrative, and professional (“EAP”) employees under the Fair Labor Standards Act (“FLSA”).  Although the FLSA ensures minimum wage and overtime protections for most covered employees, bona fide EAP employees are exempt from those protections.

The DOL last updated these regulations in 2004 when it set the minimum weekly salary level at $455 per week ($23,660.00 annually) and made other changes to the regulations, including the combination of the short and long duties salary tests and the introduction of a new exemption for highly-compensated employees.  The 2016 changes include:

ο Increases to the minimum salary level required for the executive, administrative, and professional exemptions from $455 per week to $913 per week ($47,476.00 annually).  The new salary level is based on the 40^th percentile of earnings of full-time salaried workers in the lowest-wage Census region of the United States (currently the South).  Up to 10% of the salary level can now be met with bonuses and commissions, with certain conditions placed on nondiscretionary bonuses and incentive payments;

ο Increases to the salary level required for highly-compensated employees (“HCE”) from $100,000.00 to $134,004.00, subject to a minimal duties test.  Of that, $913 per week must be paid on a salary basis or fee basis.  This salary figure is based on the 90^th percentile of full-time workers nationally;

ο The establishment of a mechanism to automatically update the salary and compensation levels every three years, beginning on January 1, 2020, to maintain salary levels at the 40^th and 90^th percentiles, respectively. The DOL will publish the information in the Federal Register at least 150 days in advance of the increase.

The Final Rule, which becomes effective on December 1, 2016, does not change any of the existing job duty requirements to qualify for an exemption.

Special Consideration for Institutions of Higher Education

Included as exempt professional employees under the FLSA are “learned professionals,” “creative professionals,” and teachers.  The new salary level established by the Final Rule applies to “learned professionals” and “creative professionals,” but not to teachers.[1]  Exempt teachers may include college or university professors or adjunct instructors. Id.  Graduate teaching assistants who have teaching as their primary duty are also not subject to the salary tests and, as such, will likely remain exempt under the Final Rule.  Athletic coaches employed by colleges and universities may also qualify for the teacher exemption if their primary duty focuses on the instruction of student athletes.  Coaches employed primarily for recruitment and other non-instructional purposes, however, would not qualify.

Administrative and executive employees of institutions of higher education, such as admissions counselors or financial aid officers (administrative) or grounds keeping or food service managers (executive), depending upon their specific job duties, will likely be most impacted by the recent changes.  The Final Rule may also impact post-doctoral fellows, administrators, and other salaried workers who meet the duties test for one of the white collar exemptions, but not the new salary level (to the extent a post-doctoral fellow’s primary duty is teaching, he/she may fall under the teaching exemption). Id.  Special regulatory provisions also exist for education employees categorized as “Academic Administrative” employees, who have a primary duty of performing administrative functions directly related to academic instruction or training in an educational establishment.

Ensuring Compliance

The DOL estimates that the Final Rule will extend the right to overtime pay to an estimated 4.2 million workers who are currently categorized as exempt.[2]  To prepare for such changes, we recommend that employers begin by assessing their current workforce to determine which employee salaries, if any, will be affected by the changes.  Employers can then determine the most suitable options for compliance, which may include pay increases to raise non-exempt employee wages above the requisite minimum thresholds or the redistribution of workloads to minimize or eliminate individual work schedules in excess of 40 hours per week, thereby limiting the overtime pay requirement.

If you would like additional information with regard these new laws or are interested in discussing strategies for assessment and compliance, you are urged to contact the CGAJ attorney with whom you work.  Questions can also be directed to the following attorneys:

Matthew J. Giacobbe, Partner (973) 845-6700 or [email protected]

Mitchell B. Jacobs, Partner (732) 583-7474 or [email protected]

Gina L. Anton, Counsel (973) 845-6700 or [email protected]

[1] “Guidance for Higher Education Institutions on Paying Overtime under the Fair Labor Standards Act,” United States Department of Labor, Wage and Hour Division, issued May 18, 2016.

[2] “Fact Sheet: Final Rule to Update the Regulations Defining and Delimiting the Exemption for Executive, Administrative, and Professional Employees,” United States Department of Labor, Wage and Hour Division, http://www.dol.gov/whd/overtime/final2016/overtime-factsheet.htm, last accessed May 19, 2016.

This CGAJ Law Legal Update has been prepared for general informational and educational purposes only and to provide a general understanding of the law, not to provide specific legal advice.  By accessing this update, you understand that there is no attorney client relationship between you and the update/website publisher.  This Legal Update should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.