United States Department of Labor Publishes Overtime Final Rule

If any of your clients’ employees or your firm’s employees are being treated as exempt from overtime pursuant to the executive, administrative, professional or highly compensated employee exemptions, it is imperative that you read this article.

On May 18, 2016, the United States Department of Labor (DOL) published its Final Rule (Final Rule) updating overtime regulations under the Fair Labor Standards Act.  The DOL proposed a Final Rule in June 2015 and asked for public comment regarding the salary threshold for white collar overtime exemptions and whether changes should be made to the duties tests for those exemptions.  The Final Rule changed salary thresholds but made no changes to the duties tests. 

The Final Rule increases the minimum salaries necessary to satisfy the executive, administrative, professional, and highly compensated employee exemptions as follows:

1. The minimum salary to satisfy the executive, administrative, and professional exemptions is $913 per week, or $47,476 annually, an increase from the current minimum weekly salary of $455 ($23,660 annually).  This salary is based on the 40th percentile of earnings of full-time salaried workers in the lowest wage Census Region, which is currently the south.
2. The total annual salary required for highly compensated employees is $134,004 (an increase from the current minimum of $100,000), the annual equivalent of the 90th percentile of full-time salaried workers nationally.
3. The Final Rule includes a mechanism for automatically updating the salary levels every three years to maintain the levels at the above percentiles.

The Final Rule also revises the salary basis test to permit employers to use nondiscretionary bonuses and incentive payments, including commissions, to satisfy up to 10% of the new minimum salary level.

The effective date of the Final Rule is December 1, 2016.  The minimum salaries will then be automatically updated every three years, beginning January 1, 2020.

Although the effective date is not until December 1, 2016, employers need to take certain actions now in order to ensure compliance with the Final Rule.  Initially, employers should determine if their employees classified as exempt under the current white collar or highly compensated employee exemptions satisfy the new minimum salary requirements.  If those employees do not meet the minimum salary requirements, employers will need to decide whether to raise salaries or convert the employees to non-exempt status.  When setting the hourly rates for previously exempt employees, employers should take into consideration anticipated overtime and the overtime hourly rate.