The Department of Labor (DOL) today released its highly anticipated final rule on overtime regulations under the Fair Labor Standards Act (FLSA). At the unveiling ceremony in Columbus, Ohio, Vice President Joe Biden, Secretary of Labor Tom Perez and Senator Sherrod Brown highlighted the goals of the new overtime rule as set forth in the White House fact sheet, focusing on the extension of overtime protections to approximately 4.2 million more American workers. As the proposed rule had indicated, the final regulation more than doubles the minimum salary that an employee must earn to qualify for the so-called "white-collar exemptions" under the FLSA. By raising the weekly salary threshold, the number of employees who qualify for the overtime exemptions will be effectively narrowed, thereby requiring employers to pay overtime to larger segments of their workforces, including employees previously considered exempt, or raise salaries to the new minimum. This substantial increase in the salary threshold from $455 per week ($23,660 per year), to $913 per week ($47,476 per year) will take effect on December 1, 2016.
With an increase of just over 100 percent, the final salary threshold is slightly less than the initially proposed threshold of $970 per week ($50,440 per year) and is equal to the salary of the 40th percentile of full-time salaried workers in the lowest income Census region based in the southern states. The salary threshold will automatically update every three years instead of annually as originally proposed. Based on projected wage growth, the White House predicts the salary threshold will increase to $51,000 by January 1, 2020, the date of the first scheduled update.
In what the White House noted was a response to employers' concerns, the final rule does not alter the jobduties tests under the executive, administrative or learned professional exemptions. Speculation of a potential change arose with the DOL's earlier indication that it was considering a quantification component similar to California's that would have required employers to show an employee was performing exempt duties a certain percentage of time to qualify under the specific exemption. The final rule leaves the "duties tests" unchanged. In a further nod to employers, for the first time ever, incentive and bonus payments can be counted towards up to 10 percent of the new salary threshold.
In addition to finalizing the salary threshold for overtime exemptions, the final rule increases the total annual compensation requirement in order to exempt highly compensated employees (HCEs) from the overtime regulations. HCEs are exempt from the overtime pay requirement if they are paid a total compensation over the threshold (which must include at least $913 per week paid on a salary or fee basis) and if they customarily and regularly perform at least one of the exempt duties or responsibilities of an executive, administrative or
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professional employee identified in the standard tests for exemption. The new threshold increases from $100,000 to $134,004, an amount equal to the annualized value of the 90th percentile of weekly earnings of fulltime salaried workers in the lowest income Census region. As with the salary threshold, the highly compensated employee threshold will be maintained at the 90th percentile and will automatically update every three years.
Employers will have roughly 200 days to comply with the new regulation following its final publication, an increase from the much shorter 60-day period that had been suggested. While the wait is over for the final rule, employers should continue the process of evaluating and assessing their pay practices and implementing the necessary changes in order to be in compliance with the new regulation by December 1. In an effort to help employers to comply with the new rule, the DOL released three technical guidance documents, specifically aimed at private employers, non-profit organizations and institutions of higher education.