CLIENT UPDATE

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May 18, 2016

U.S. Department of Labor Issues Final Rule Extending Overtime Pay

On Wednesday, May 18, 2016, the U.S. Department of Labor, Wage and Hour Division (“DOL”) issued a final rule to extend overtime pay to 4.2 million more employees who were not previously eligible under federal law.  Under the final rule, effective December 1, 2016, the minimum annual salary required to qualify for one of the “white collar” exemptions will be increased to $47,476 annually (or $913 per week).

  1. 1. Increase to Minimum Salary Required for Overtime Pay Exemption
  2. The final rule establishes new regulations to amend the “white collar” exemptions under the Fair Labor Standards Act (“FLSA”) that exempt certain executive, administrative, professional, outside sales and computer employees from overtime pay.  Under previous regulations, salaried employees earning at least $23,660 annually (or $455 per week) and performing certain “white collar” job duties were exempt from overtime pay.  The new regulations raise the minimum salary level to $47,476 annually (or $913 per week), more than double the previous salary level, which had not been adjusted since 2004. 

    Additionally, for the first time, employers will be able to count bonuses and incentive payments (including commissions) to satisfy up to 10% of the required salary level.
    In addition to being paid the required minimum salary level, an employee must satisfy certain “white collar” job duties to be exempt from overtime under the FLSA.  Importantly, the new regulations do not change the “duties tests.”  As a result, employers may continue to utilize the traditional duties’ tests that have been in place for several years when evaluating whether an employee may be treated as exempt from overtime.


  3. 2. The Minimum Salary Required for Exempt Status Will Automatically Update Every Three Years.
  4. The new salary level of $913 per week (or $47,476 annually) equates to the 40th percentile of weekly earnings for full-time salaried employees for the lowest wage Census Region (historically, the South).   The 40th percentile benchmark takes into account the regional variations in income.  The new regulations require the salary level to be automatically updated every three years to remain at the 40th percentile. 


  5. 3. Increase to Minimum Salary Required for Highly Compensated Employee Exemption
  6. The new regulations raised the minimum annual salary level for highly compensated employees from $100,000 to $134,004.  To qualify for the highly compensated employee exemption, an employee must earn at least $134,004 annually, which includes at least $913 per week paid on a salary basis, and satisfy at least one element of the applicable job duty test to be exempt from overtime.  The new salary threshold is equivalent to the 90th percentile of full-time salaried workers nationally.


  7. 4. DOL Issues Guidance for Employers
  8. Employers may wish to review the Technical Guidance Documents issued by the DOL for private employers, available at https://www.dol.gov/whd/overtime/final2016/general-guidance.pdf, nonprofits, available at https://www.dol.gov/whd/overtime/final2016/nonprofit-guidance.pdf, and higher education institutions, available at https://www.dol.gov/whd/overtime/final2016/highered-guidance.pdf, to help employers understand their responsibilities and comply with the new overtime regulations.

Takeaway for Employers

Employers should review salary levels to ensure compliance with the increased salary levels required for overtime exemptions under the new regulations.  Employers may also wish to consider revising their budgets to reflect the increase in labor costs after the overtime regulations go into effect on December 1, 2016.

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If you have any questions regarding the DOL’s final rule on overtime pay, please do not hesitate to contact us.