Department of Labor Announces New Overtime Rule

Yesterday, the Department of Labor announced its long awaited Final Rule amending the Fair Labor Standards Act’s salary test for white-collar employees. It significantly impacts which of your white-collar employees qualify as exempt from the FLSA’s overtime-pay requirements.

The Rule, as expected, increases the salary level at which one qualifies as an exempt white-collar employee (up from $455 weekly / $23,660 annually to $913 / $47,476), while leaving alone (for now) the duties one also must meet to qualify. It is expected that 4.2 million more workers will now qualify for overtime.

The effective date of the Final Rule is December 1, 2016, giving employers more than six months to digest the new Rule, reclassify workers, and comply with the new salary test. In addition to the salary-test increase, the new Rule:

1. Only applies to the administrative, executive, and professional (except doctors, lawyers, or teachers) exemptions.

2. Sets the 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).

3. Sets the total annual compensation requirement for highly compensated employees subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally (increased from $100,000 annually to $134,004).

4. Establishes a mechanism for automatically updating the salary and compensation levels every three years (calculated based on the above-described 40th percentile measurement).

5. Permits employers to use non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level (this is new to the FLSA, and a pleasant surprise for employers).

Employers have a little more than six months to get their wage-and-hour houses in order. Employers need to determine which exempt employees make less than $47,476, and whether to switch these workers to non-exempt or gross-them up with salary increases or incentive payments to the new salary level to keep them exempt from overtime pay.

If you switch these workers to non-exempt, you will have to deal with the employee-relations issues that arise from tracking (or restricting) overtime and limiting flexibility. On the other hand, if you gross them up to keep them exempt, you will have to deal with the employee-relations issues that arise from salary contraction. Will an exempt general manager be happy that she is being paid nearly the same as her exempt manager / supervisee?

If you have questions about this new Rule, how it impacts your employees, or how to pay or classify those employees that currently fall below the $47,476 threshold, contact either Seth Briskin, Jon Hyman, Lester Armstrong, or Steve Dlott in Meyers Roman’s Labor & Employment Group to help guide you through these difficult issues.