The U.S. Department of Labor Wage and Hour Division (DOL) published the highly anticipated final rule revising the overtime regulations today. The rule revises the regulations defining which white collar workers are eligible to receive overtime pay for hours worked over 40 in a workweek under the Fair Labor Standards Act (FLSA). The final rule, which increases the annual salary threshold for white collar workers from $23,660 to $47,476 or from $455 to $913 per week, is more than double the current minimum salary for the overtime exemption but is less than the anticipated increase, which was proposed to be $50,440 per year or $970 per week. As expected, the rule includes, for the first time, an automatic-escalator for the salary threshold to keep pace with inflation.
The final rule also sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to $134,004 – the annual equivalent of the 90th percentile of full-time salaried workers nationally. The DOL explained that this threshold “was designed to ease the burden on employers in identifying overtime eligible employees since it is more likely that workers earning above this high salary perform the types of job duties that would exempt them from overtime requirements.”
The final rule also establishes an “automatic-escalator,” which is a mechanism for the DOL to automatically update the salary and compensation levels of the rule every three years to maintain the levels at the 40th percentile of full-time salaried workers in the lowest income region of the country. The DOL states that the purpose of the escalator is to ensure that the rule continues to provide useful and effective tests for exemption. The three-year adjustments will occur on January 1, beginning in 2020.
The DOL, however, offered some relief for employers. The final rule does not include any changes to the duties test. The DOL also made it clear that employers may count bonuses and commissions toward as much as 10% of the salary threshold.
As we reported earlier, this is all part of President Obama’s agenda to raise wages and increase the number of employees eligible for overtime pay. It will surely have a considerable impact on employers and employees.
While it is expected that business groups will urge their legislators to defund or otherwise block the rule, employers should begin preparing now for the new rule if they haven’t already. The clock is ticking – employers will have until December 1, 2016 to comply with the new rule.
The DOL Fact Sheet addressing the new rule can be viewed here.