New Federal Overtime Regulations. Are You Ready?

On May 18th 2016, the U.S. Department of Labor (DOL) issued its Final Rule updating its regulations to increase the salary threshold required to qualify for the federal Fair Labor Standards Act’s “white collar” exemptions. The DOL estimates that the updated regulations, which more than double the minimum salary for a white collar exemption to apply, will cause 4.2 million currently exempt workers to be entitled to minimum wage and overtime protection, absent intervening action by their employers, at a cost of $1.2 billion in additional overtime pay in the first year alone. Employers must be in compliance with the new regulations by December 1, 2016, when they become effective. For employers who have not yet begun to grapple with the myriad implications of the new regulations, there is no time to lose. Here’s why.

The new regulations will affect exempt-employee status under the FLSA in the following key ways:
  • The standard salary threshold for the white collar exemptions is increased by more than double, from $455 per week, or $23,660 per year, to $913 per week, or $47,476 annually for a full-year worker. According to the DOL, this increased salary level is equal to the 40th percentile of the earnings of full-time salaried workers in the lowest Census Region, currently the South, based on data from the fourth quarter of 2015. The change will affect a substantial number of currently exempt employees in Florida, absent employer action.
  • The salary threshold for an exempt Highly Compensated Employee is increased by more than one-third, from $100,000 to $134,004 per year. According to the DOL, this requirement equals the annualized weekly earnings of the 90th percentile of full-time salaried workers nationally.
  • The standard salary level and Highly Compensated Employee compensation requirements will be automatically updated every three years to maintain the earnings percentiles established in the Final Rule and thus prevent these thresholds from becoming outdated. The first update will take effect on January 1, 2020 and is projected to raise the new annual salary level of $47,476 to $51,168 and the new Highly Compensated Employee annual compensation requirement from $134,004 to $147,524. Subsequent updates will occur on January 1 of every third year thereafter.
  • Employers for the first time are permitted to count non-discretionary bonuses, incentives, and commissions toward up to ten percent of the required salary level for the standard exemption, so long as they pay these amounts on a quarterly or more frequent basis.

What do the new overtime regulations not do?

Under current law, an exempt employee’s “primary duty” must be the performance of work that meets the test of the relevant exemption. The new regulations do not change this test.

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