The Top 6 Highlights from the DOL’s New Overtime Pay Regulations

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After receiving and reviewing over 270,000 public comments, on May 18, 2016 the U.S. Department of Labor (“the DOL”) released its much anticipated Final Rule regarding overtime pay eligibility for certain “white collar workers” under the Federal Fair Labor Standards Act (“FLSA”).

The changes are dramatic – the DOL estimates some 4.1 million workers will become eligible for overtime pay, and another 100,000 will receive salary increases to meet the new minimum salary threshold.  Under the FLSA, non-exempt employees are entitled to overtime pay of 1.5 times an employee’s “regular rate of pay” for all hours worked over 40 in a workweek.

Below are the notable highlights of the Final Rule:

1. A Doubling of the Minimum Salary Threshold. The Final Rule for the Executive, Administrative, and Professional (“EAP”) Exemptions raises the minimum salary level from its current level of $455 per week ($23,660 annualized) to $913 per week ($47,476 annualized) in 2016. This new threshold represents the 40th percentile of full-time salaried workers in the “lowest wage Census region” (currently the South)

2. A 34% Increase to the Minimum Salary Necessary for the Highly Compensated Employee Exemption. The Final Rule raises the total annual compensation required to qualify for the Highly-Compensated Employee (“HCE”) exemption from $100,000 to $134,004 annually. This threshold represents the 90th percentile of full-time salaried workers nationally. Employers can still make one catch-up payment to satisfy the new HCE salary threshold “during the last pay period or within one month after the end of the 52 week period.

3. Automatic Updating of Salary Thresholds Every 3 Years. The DOL’s Final Rule will automatically update the salary threshold every three years beginning January 1, 2020. Each salary update will raise the minimum threshold to the 40th percentile of full-time salaried workers in the lowest wage Census region (currently the South). That threshold is estimated to rise to $51,168 in 2020. The HCE threshold will also automatically update to the 90th percentile of full-time salaried workers nationally, and is estimated to rise to $147,524 on January 1, 2020. The Final Rule requires the DOL to post the new salary levels 150 days in advance of their effective date, (i.e. on or about August 1, 2019)

4. Non-Salary Compensation and Catch-Up Payments can be Utilized to Meet the Salary Threshold. The Final Rule gives employers some flexibility by allowing them to include non-discretionary bonuses, incentive pay, and/or commissions to meet the new EAP salary threshold. However, in order to be included these payments must be made on at least a quarterly basis, and cannot exceed more than 10% of the required salary threshold. The Final Rule also permits employers to make a catch-up payment not exceeding the 10% limit once per quarter to meet the EAP salary threshold

5. No Changes to the “Duties Tests.” In order to classify an employee as exempt from the FLSA’s overtime pay requirements, an employer must establish that the employee satisfies both the minimum salary threshold and the “duties test” for the particular exemption. Each exemption has its own set of duties that an employee must perform. In its proposed rules the DOL had solicited public comment on whether to change any of the “duties tests” for the EAP Exemptions, but in the end made no changes. Of course, employers must still make sure that their exempt employees satisfy the current duties tests of the exemptions they rely on.

6. Effective Date of December 1, 2016. In somewhat of a surprise, the DOL has given employers over six months to come into compliance with the Final Rule – the new salary thresholds will go into effect on December 1, 2016. Employers were concerned that the DOL would give them as little as 60 days to come into compliance. Given the significance of the changes, however, this slightly lengthier implementation period is justified.

The Cost of Doing Business Just Went Up (Again) – The DOL Proposes New Overtime Pay Regulations

“Money can’t buy you happiness, but it can buy you a yacht big enough to pull up right alongside it.”
 
– David Lee Roth (Lead Singer – Van Halen)

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The U.S. Department of Labor (“DOL”) just released proposed rules that will significantly increase the number of employees entitled to receive overtime pay under the Fair Labor Standards Act (“FLSA”). The highly anticipated changes will make an estimated 5 million currently “exempt” employees eligible for overtime pay for all hours worked over 40 in a workweek.

The major changes relate to the amount of salary required for the “executive, administrative, and professional” exemptions, and the amount of total annual pay required for the “highly compensated employee” exemption.

The proposed rule for the executive, administrative, and professional exemptions more than doubles the minimum salary level from its current level of $455 per week ($23,660 annualized) to approximately $921 per week ($47,892 annualized) in 2015, and $970 per week ($50,440 annualized) in 2016. The DOL has proposed automatically updating this salary amount so that it will increase without additional rulemaking.

The proposed rule also raises the total annual compensation required to qualify for the highly-compensated employee exemption from the $100,000 to at least $122,148. Like the base salary requirement, the DOL has also proposed updating the total annual compensation amount for this exemption so that it will increase without additional rulemaking.

Many stakeholders expected the DOL to propose changes to the “duties test” applicable to the executive, administrative, and professional exemptions. The DOL did not propose specific changes to any of the duties tests, but rather, solicited public comments on them, as well as on the proposed salary levels.

As the changes are “proposed,” they do not currently have the force of law.  They could also be modified after the public “comment period” and further DOL review.  When the final regulations are issued they will likely not take effect for several months after publication. These administrative steps will likely push the effective date of the legally binding “final” regulations into 2016.

In the interim, employers would be well served  to revisit their current “salaried exempt” classifications, as they will have some important decisons to make, including: (1) whether to increase certain job classifications’ salaries to meet the new salary thresholds; (2) whether to convert certain salaried employees to hourly non-exempt and track hours worked; (3) when to implement any changes; and (4) figuring out how to pay for the increased labor costs.