Legal Alert: Department of Labor Issues Final Rule Updating Overtime Regulations
On May 18, 2016, the Department of Labor’s Final Rule updating the overtime regulations was published. The key changes to the overtime regulations set forth in the Final Rule are explained below:
Under the Fair Labor Standards Act (“FLSA”), employees who are employed in a bona fide executive, administrative or professional capacity are exempt from minimum wage and overtime protections (“white collar exemption”). Under the Final Rule, in order to be exempt under the white collar exemption of the FLSA, the employee must meet all of the following three elements:
- the employee must be salaried (paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed); and
- the employee must be paid more than $913 per week (the equivalent of $47,476 annually for a full-year worker); and
- the employee must primarily perform executive, administrative, or professional duties, as defined in the Department of Labor’s regulations
The second prong of this test is the major change in the Final Rule. Under the Final Rule, any employee who earns less than $913 per week or $47,476 per year must be paid overtime for hours worked over 40 no matter what job duties that person may have (compared to $455 per week or $23,660 per year under the old regulations). Employers are able to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary level to meet prong 2 of the exemption, provided these payments are made on a quarterly or more frequent basis.
Moreover, the Final Rule also updates the highly compensated employee exemption to the overtime law, and increases the salary that employees must be paid in order to fall within this exemption to $134,004/yr. (compared to $100,000 under the old regulations).
The effective date of this Final Rule is December 1, 2016. On that day, the new standard salary level ($913 per week or $47,476 per year) and highly compensated employee compensation requirement ($134,004 per year) will take effect. Automatic updates to these salary levels will occur every three years, beginning on January 1, 2020.
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