On Wednesday May 18, 2016, the Department of Labor (Department) issued the new Final Rule for Overtime for Exempt White-Collar Workers (Final Rule). The Final Rule totals 503 pages and will be officially published in the Federal Register on May 23, 2016. Some highlights of the Final Rule are as follows –
Final Rule for Overtime for Exempt White-Collar Workers
- The Final Rule updates the salary threshold under which most white-collar workers are entitled to overtime compensation. The salary threshold is raised from $455 a week ($23,660 for a full-year worker) to $913 a week ($47,476 for a full-year worker).
- The Final Rule will automatically update the salary threshold every three years based on wage growth over time. Each update will raise the standard threshold to the 40th percentile of full-time salaried workers in the lowest-income Census region, estimated to be $51,168 in 2020. The Department will post new salary levels 150 days in advance of their effective date, beginning August 1, 2019.
- The Final Rule does not make any changes to the “duties test” that determines whether white-collar salaried workers earning more than the salary threshold are ineligible for overtime pay. There are exemptions for executive, administrative or professional workers. For workers above the updated salary level, employers will continue to use the same duties test.
- The Final Rule also raises the highly compensated employee’s salary level from $100,000 to $134,004 a year. Employees making over this level do not have to pass the duties test to be excluded from overtime. This threshold will also adjust every three years under the new rule.
- The Final Rule allows up to 10% of the salary threshold to be met by nondiscretionary bonuses, incentive pay or commissions, provided these payments are made on at least a quarterly basis. This recognizes the importance these forms of pay have in many companies’ compensation arrangements. This is a new policy that is in response to many comments received from the business community.
- The Department has set an effective date of December 1, 2016 for the Final Rule.
The Department estimates that 4.2 million salaried workers will be directly affected by the Final Rule based on their salary. The Department believes an additional 8.9 million workers are currently eligible for overtime because their duties do not meet the exemption for executive, administrative or professional workers. Under the Final Rule, their eligibility for overtime will become clearer because their salaries will fall below the new threshold. As a result of the Final Rule an extra $1.2 billion a year is expected to be paid in salary expense.
The December 1, 2016 implementation deadline will approach rapidly. Employers have many options in complying with the Final Rule.
Contact us with questions or concerns regarding the Final Rule and the impact it may have on your organziation and visit our Not-for-Profit Industry Group services page to learn about the services we offer the industry.