Yesterday, the U.S. Department of Labor (DOL) released its final rule modifying the “white collar” exemption tests for executive, administrative, and professional employees under the Fair Labor Standards Act (FLSA).

The salary test for white collar employees will go from $455 per week ($23,660 annually) to $913 per week ($47,476 annually). This increase is effective December 1, 2016.

The new rule extending overtime pay exemptions will impact 4.2 million American workers within its first year of implementation. Employers will have less than seven months to determine whether it is cost-effective to increase employee salaries to maintain the exemption or if they will have to reclassify employees as non-exempt. The change will not only impact companies financially, but also has the potential to affect employee morale.

Additionally, the rule establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at certain percentiles and to ensure that they continue to provide useful and effective tests for exemption.