A federal court issued an injunction on the FLSA changes scheduled to take effect on December 1, 2016, which established a new minimum salary threshold of $47,476 for an employee to be exempt from overtime regulations.  Because of the court’s order, the rules will not go into effect until such time that the injunction is lifted or the case is decided in favor of the proposed rule changes.

Oregon State Capital

The Department of Labor (DOL) Wage and Hour Division (WHD) has released the final rules to update the Fair Labor Standards Act (FLSA).  The Office of Human Resources Classification and Compensation Team hosted an informational session, on October 12th to discuss the logistics and administrative changes associated with the new regulations.   

On May 18, 2016, The Department of Labor (DOL)’s Wage and Hour Division (WHD) announced new revisions to the Fair Labor Standards Act (FLSA). The final rule updates the minimum salary threshold required for executive, administrative, and professional exemptions from $23,660 to $47,476 per year, or from $455 to $913 per week.

These changes take effect on December 1, 2016. The Final Rule does not include any changes to the duties tests, which also affect the determination of who is exempt from overtime.

Under these regulations, a position must satisfy three criteria to qualify as exempt from overtime:

  1. The incumbent in the position must be paid on a salaried basis (the salary basis test);
  2. The salary must be at least $913/week, or $47,476 annually (the minimum salary requirement or salary threshold);
  3. The position’s “primary duties” must be consistent with executive, professional or administrative positions as defined by DOL (the primary duties test).

The final rule also includes the following changes: 

Balancing the issues

  • The highly compensated employee threshold increased. The total annual compensation threshold to exempt highly compensated employees increased to $134,004 from $100,000.
  • The threshold will increase automatically. Every three years, the salary threshold will increase to maintain the 40th percentile of full-time salaried workers in the lowest income region of the country.  Based on projections of wage growth, the threshold is expected to rise to more than $51,000 with the first update on January 1, 2020. 
  • Bonuses and incentive payments will count toward up to 10% of the new salary level.  For the first time, employers will be able to count bonuses and commissions toward as much as 10% of the salary threshold
  • Additional Information on the new regulations and specific guidance for Higher Education can be found on the following links:

How to Apply the New FLSA Rule:

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Evaluate positions to ensure compliance with the DOL’s new overtime rules including: 

  • Review positions that are below the proposed salary threshold ($47,476) and determine which ones, if any, you might want to adjust to the new threshold, so that those positions would remain exempt.  This exercise would be particularly useful for positions that are already fairly close to the new threshold.
  • Before deciding to increase an employee’s rate of pay, Supervisors must review the position profile and salary grade of the employee, and make sure a salary increase would be both inside the assigned range, and within the appropriate quartile of the range for the employee’s performance, skill, and experience.  Please see the “Managing Pay Within a Grade Tool” for further guidance in making this determination.
  • Supervisors are NOT required to move any employees to the new threshold.  You can leave them at their current rate of pay, and make them FLSA non-exempt (overtime eligible).  If an employee never works above 40 hours/week, this approach will not cost the institution any additional money.  Work that exceeds 40 hours a week, however, would need to be compensated at time-an-a-half.
  • Supervisors may want to calculate the resulting overtime cost of one hour of overtime, and multiply that by the typical number of hours, over 40 hours, their employees work.  This will help with budgeting and may also inform the decision whether to increase the employee’s base rate of pay above the new salary threshold, if appropriate.
  • It is important for Supervisors to consider the collateral impact on internal salary equity against similarly-situated positions and against higher-level positions within the unit in order to mitigate salary compression.
  • It would typically be important to maintain a salary differential between positions that are adjusted to the new threshold and those currently at or near the threshold, so Supervisors would need to carefully consider what salary adjustments might be needed.

Prepare your budget. Even though you don’t yet know the full impact of the exemptions, you need to estimate the impact a change will have on your budget and plan accordingly.

Consider how to respond to effects on morale and productivity. The changes will affect everyone, and how you communicate this change to employees may be as impactful as the change itself.

Consider what modifications to processes and procedures will be necessary. There may be several employees in the unit who are moving from exempt to non-exempt FLSA status.

  • Are there position descriptions that will need to be updated?
  • Will there be changes to the organizational structure and workload distribution?
  • Establish and discuss timekeeping procedures for the scheduling and planning of overtime hours, tracking travel, irregular hours, or fluctuating seasonal demands
  • What impact, if any, will the funding source of the position have on the employee’s work schedule?

FLSA Information Session

June 28, 2016

The Office of Human Resources Classification and Compensation Team hosted an informational session, on June 28th to discuss the changes, including specific guidance for higher education, and next steps toward implementation.   

March 29, 2016

The Office of Human Resources Classification and Compensation Team hosted an informational session to discuss the proposed changes, how supervisors can prepare, tools and options to consider, and a question and answer session on March 29, 2016.