New Overtime Rules

In May, the U.S. Department of Labor (DOL) released updated regulations that will expand federal overtime pay protections under the Fair Labor Standards Act (FLSA). The new rules, which take effect December 1, 2016, raise the minimum salary threshold required to qualify for the so-called “white collar” exemptions from federal minimum wage and overtime requirements for executive, administrative, and professional employees to $47,476 per year.

Under the previous regulations defining the white collar exemptions, employees had to be paid at least $23,660 annually on a salary basis and meet certain “job duties” tests. Although the new rules leave intact the current job duties tests, the minimum salary threshold will more than double. Further, the new rules provide for automatic updates every three years to ensure that the threshold stays at the 40th percentile of weekly earnings for full-time, salaried workers in the nation’s lowest income Census region.

The $47,476 minimum salary level contained in the final version of the rules represents a key change from proposed rules issued in June 2015, which had set the threshold at an estimated $50,440 per year. The DOL lowered the amount because of strong opposition to the proposed rules reflected in public comments. In addition, the rules will allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new salary threshold. The DOL estimates that 4.2 million U.S. workers currently exempt from overtime pay will no longer be exempt under the new $47,476 threshold.

Other changes in the new rules include an increase in the salary threshold for the “highly compensated” worker exemption, to $134,004 annually.

Employers should begin planning now on the best ways to adapt to the new rules. For starters, employers should identify employees who are currently classified as exempt but are paid a salary below the new $47,476 minimum. Unless those workers’ salaries are increased to the new threshold, they must be reclassified as nonexempt, and be paid time-and-a-half for every hour worked above 40 hours each week. Employers should take steps now to develop options for compliance as well as a plan for communicating these changes to employees.

If you have questions or would like to discuss your company’s compliance with the new rules, please contact Steve Brenneman, Kelly Smith Haley, or the Fox Swibel attorney with whom you usually work.