DOL Announces New Overtime Rules; 4.2 Million Workers Affected!

The long awaited update on overtime regulations has been released on May 18, 2016. According to experts, the implementation of new regulations will spread-out the overtime pay protections to over 4 million workers within the first year.

Key Updates in 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.

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.

Source: DOL Website

It has been over ten years since the Department of Labor overhauled the Fair Labor Standards Act overtime regulations.  Over two years ago, President Obama directed the Department of Labor to look at the exemptions and simplify them.  President Obama opined that the required salary was “too low” and that the 2004 regulations were simply too difficult to interpret – as demonstrated by the increasing litigation over who met the managerial/executive exemption.  The Department of Labor took almost two years to publish proposed regulations that did nothing more than to suggest that the minimum salary requirement should be raised to $50,440.  The vagueness of the proposed regulations left employers in a limbo of how to budget for 2016.

The Department of Labor has also been slow about finalizing the regulations. Finally, these regulations have been finalized. Employers only have a few months to come into compliance which may mean sweeping changes to job descriptions, your budget for the rest of 2016, etc. What do you need to do to come into compliance?

Learning Objectives:

• Anticipated legal challenges to final rules
• Case examples of why President Obama demanded new regulations
• New minimum salary requirements for white collar exemptions
• New minimum salary requirements for highly compensated employees
• Use of non-discretionary bonuses to establish minimum salary requirements
• Why the Department of Labor did not change the duties test
• How the Department of Labor will determine automatic increases in the future

Who will Benefit: Human resource professionals, Chief Financial Officers, Business Owners, Payroll Clerks