Yesterday, we informed you that the overtime rule was imminent, and early this morning, the Department of Labor (“DOL”) released its final rule significantly modifying current exemptions from overtime (“Final Rule”). While the Final Rule did taper back some of the provisions in the proposed rule, the substantive revisions were retained and now requires employers to audit their pay practices to ensure they will be in compliance by December 1, 2016 — the date the changes become effective.
Key Provisions of the Final Rule:
- Salary Test – The current overtime exemption threshold of $23,660 ($455/week) has more than doubled to $47,476 ($913/week). The proposed rule suggested setting the standard salary level at the 40th percentile of weekly earnings for full–time salaried workers which was estimated to be over $50,000; however, the Final Rule opted to use the 40th percentile from the lowest–wage Census Region, which is currently the South.
- Highly Compensated Employee Exemption – While concessions appear to have been made to the regular salary threshold, the same cannot be said for the exemption to highly compensated employees (“HCE”). While many anticipated a similar increase in the current $100,000 threshold for the exemption, estimates targeted an increase to approximately $120,000. The Final Rule now mandates that in order to find protection under the HCE exemption, employees must make in excess of $134,004 annually — a figure tied to the 90th percentile of full–time salaried workers nationally.
- Duties Test – Employers breathed a sigh of relief to find out that the Final Rule did not make any modifications to the duties test of the exemption. Therefore, individuals that were properly performing exempt work can remain classified as exempt so long as they meet the increased salary thresholds discussed above.
- Automatic Increases – The proposed rule suggested that the salary threshold should be indexed to certain benchmarks to insure they are updated annually. The Final Rule requires indexing to maintain consistency with the 40th percentile from the lowest-wage Census Region and requires indexing to be performed every three years. Many are criticizing such a process, not only because it imposes an administrative burden on employers, but also because of the potential for significant increases in future years — e.g. as current full-time salaried workers below the newly implemented threshold are now moved from salary to hourly, the benchmark of the 40th percentile will continue to increase.
As of this morning, the Office of Management and Budget (“OMB”) has reviewed the Final Rule, but it still has not been published in the Federal Register. Andrews Kurth is continuing to review the OMB–approved version of the Final Rule and will provide additional insight upon its official publication.