U.S. Department of Labor Releases Final Rule on Overtime Regulations

On May 18, 2016, the United States Department of Labor (“DOL”) issued its long anticipated final rule amending the Fair Labor Standards Act (“FLSA”) overtime regulations. The new rule takes effect on December 1, 2016, and will require a revaluation of employee compensation, staffing and deployment.

 

To be exempt from overtime under the FLSA, an employee generally must perform exempt duties, and must be compensated “on a salary basis” (as opposed to being paid an hourly wage) at a salary level above a specified minimum. The long-awaited DOL rule raises the minimum salaries needed for overtime exemption. The duties an employee must perform to be exempt from overtime have not changed, and neither have the rules defining what it means to be paid “on a salary basis.”

 

The key provisions of the new rule that employers should know include:

 

  • The new rule raises the salary threshold for overtime exemption from $23,660 to $47,476 annually for a full year worker, or from $455 per week to $913 per week, and includes an automatic adjustment every three (3) years thereafter based on the 40th percentile of weekly earnings of full-time salaried workers in the lowest wage U.S. Census region.
  • The “Standard Duties” test, which prescribes the executive, professional, administrative or other duties an employee must perform to be deemed overtimeexempt, remains unchanged.
  • Employers will be able to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the salary level needed to establish exempt
    status. These payments, however, must be made on a quarterly or more frequent basis in order to qualify.
  • For Highly Compensated Employees (HCEs), who are subject to a more relaxed duties test to be overtime-exempt, the annual salary threshold was raised from $100,000 to $134,004, also to be adjusted every three years.

 

The DOL projects that 4.2 million employees will be impacted by the new rule, and this is likely a low estimate. And although there is proposed legislation to block the implementation of the rule, that legislation would likely be vetoed by President Obama even if it were to pass Congress. Therefore, employers must closely examine the options they have in light of the new rule for any affected employee. An employer obviously could simply raise the employee’s salary to meet the new minimum requirement. More likely, however, employers with many affected employees will be required to reorganize workloads, amend employee schedules, and change work hours to ensure compliance with the new rule.