On May 18, 2016, President Obama announced a new U.S. Department of Labor final rule updating federal overtime regulations. Public and private sector concerns continue to be expressed over this new rule which will increase the salary threshold for mandatory overtime pay from $23,660 to $47,476. This change becomes effective on December 1, 2016.
Under the new rule, initial increases to the standard salary level (from $455 to $913 per week) and HCE total annual compensation requirement (from $100,000 to $134,004 per year) will be effective on December 1st. Future automatic updates to those thresholds will occur every three years, beginning on January 1, 2020. The new rule will extend mandatory overtime pay requirements to over 4 million workers.
In 2014, President Obama signed a Presidential Memorandum directing the Department to update the regulations defining which white collar workers are protected by the Fair Labor Standards Act (FLSA’s) minimum wage and overtime standards. The memorandum instructed the Department of Labor to look for ways to modernize the regulations while ensuring that the FLSA’s intended overtime protections are fully implemented.
The final rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt. Specifically, the final rule:
1. Sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South ($913 per week; $47,476 annually for a full-year worker);
2. Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004);
3. Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption; and
4. Amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.