On May 18, 2016, President Obama and Labor Secretary Perez announced the publication of the final rule updating the overtime pay protections. The Department says that the new rule “will automatically extend overtime pay protections to over 4 million workers within the first year of implementation.” The new threshold is $47,476. The rule is effective on December 1, 2016.

As reported here on May 17, when we told you that the new Rule was “imminent”, before December 1, management, administrative and professional employees earning more than $23,660 a year are exempt from receiving overtime pay no matter how many hours a week that they work. Non-exempt employees must be paid time and one-half for all hours over forty worked in any given week. The new rule raises that threshold to $47,476, which is the 40th percentile of earnings of full-time salaried workers in the lowest wage Census Region (currently the South).

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 the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South ($913 per week; $47,476 annually for a full-year worker);
  2. Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004); and
  3. Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.

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.