The U.S. Department of Labor announced its long-awaited changes to the federal overtime rule, increasing the minimum salary requirement under the Fair Labor Standards Act (FLSA).
The rule will automatically extend overtime pay protections to over 4 million workers within the first year of implementation.
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:
- Sets the standard salary level at $913 per week; $47,476 annually for a full-year worker
- Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to $134,004; and
- 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.
The effective date of the final rule is December 1, 2016. The initial increases to the standard salary level (from $455 to $913 per week) and HCE total annual compensation requirement (from $100,000 to $134,004 per year) will be effective on that date. Future automatic updates to those thresholds will occur every three years, beginning on January 1, 2020.
Although the Office of Management and Budget (OMB) has reviewed and approved the Final Rule, the document has not yet been published in the Federal Register. The Final Rule that appears in the Federal Register may contain minor formatting differences in accordance with Office of the Federal Register publication requirements. The OMB-approved version is being provided as a convenience to the public and this website will be updated with the Federal Register’s published version when it becomes available.
More information can be found here.
In response to this ruling, SmithAmundsen law firm published a blog post suggesting employers analyze the following:
- How many of your current employees are affected by this final rule?
- Is a salary increase for those who do not currently meet the salary requirement a plausible financial decision to the required increases?
- Are there job positions that should now be reclassified as non-exempt and the employees will now be entitled to overtime if they work over 40 hours?
- Review your handbooks and policies regarding exempt and non-exempt status.
- Tighten up your policies regarding working overtime and analyze the possibility of limiting the number of overtime hours worked for non-exempt employees.
- Review and update policies and practices concerning “off the clock” time and ensure that there are proper controls regarding all hours actually worked by non-exempt employees.
- Review benefits applicable to exempt and non-exempt employees and how a change in status may impact the benefits to your employees.
