South San Francisco: 650-615-4860

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3 minutes reading time (549 words)

Special Alert - May 2016

The wait is over.  On May 18, 2016, the Department of Labor (DOL) has issued its much anticipated changes to the Fair Labor Standards Act (FLSA) rule regarding the minimum salary for the “white collar” overtime exemption.  The Final Rule becomes effective December 1, 2016, and employers in every business sector should start making plans to meet the new standards.

Key Provisions of the Final Rule

The Final Rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt. Specifically, the Final Rule:

  1. Sets the standard salary level at $913 per week or $47,476 annually for a full-year worker;
  2. Sets the total annual compensation requirement for highly compensated employees (HCE) at $134,004 (Remember:  the HCE exemption does not apply to California-based employees); and
  3. Establishes a mechanism for automatically updating the salary and compensation levelsevery three years.  In particular, the salary level for the “white collar” exemption will be updated to maintain a threshold at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently, the South; and for the HCE at the 90th percentile of full-time salaried workers nationally.
  4. Additionally, the Final Rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.

The increases are effective December 1, 2016.  Future automatic updates to those thresholds will occur every three years, beginning on January 1, 2020.

Finally, the Final Rule does not alter or change the FLSA “duties test.”  

What to do now?

  1. Study the guidance.  The Department of Labor has published employer guidance here and is offering free webinars starting May 26, 2016 online here
  2. Review current salaries and job duties/job descriptions and determine which salaries you can afford to raise to retain exempt status and whether the job meets the “duties test.”
  3. Analyze hours worked and overtime.  Would converting exempt salary to hourly reduce your payroll or would it be the same? Weigh advantages and disadvantages.
  4. Determine whether you need to lower the hourly rate so that when you convert from exempt to hourly, the total earnings remain the same.
  5. Market the change.  Many employees view “salary exempt” status as a success threshold.  They may receive the message that they are being converted to hourly as some kind of demotion.  Market this federal mandate as a historical first that the company must manage as a business necessity.  Respect your employees – they are what make your company great.
  6. Attend FLSA analysis workshops.
  7. Do not forget that California law regarding “white collar” exemptions are still alive and well and most be considered when doing the analysis.
  8. Work methodically and make sound choices.


Simpson Garrity Innes & Jacuzzi offers onsite and classroom workshops to help you make careful, informed decisions about your workforce.  
Join the conversation with other employers in your business sector by attending a workshop or webinar presented by one of our name partners.
Or work with our Human Resource Consulting Team (a Human Resource Specialist under the direction of a name partner) onsite at your business location to help you with your analysis and employment audit.  

Check SGIJ’s website for workshop opportunities at
or call the office 
to schedule a workshop or onsite consultation.

Issue 2 - 2016 Newsletter
Issue 1 - 2016 Newsletter

Our Locations

Simpson, Garrity, Innes & Jacuzzi, P.C.
601 Gateway Boulevard, Suite 950
South San Francisco, CA 94080
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Tel: 650-615-4860
Fax: 650-615-4861

2175 N. California Blvd, Suite 710
Walnut Creek, CA 94596
Map and Directions

Tel: 925-322-8889
Fax: 925-322-8890