‚ÄčThe United States Department of Labor has released its final rule updating overtime regulations. The Rule extends overtime pay protections to over 4 million workers within the first year of implementation, beginning December of 2016. It is important for employers to understand the new regulations.

Under the Fair Labor Standards Act (“FLSA”), workers, including salaried workers, are guaranteed overtime pay at time and a half for any hours they worked beyond a 40 hour work week. There are, however, exemptions to the rule based on both the duties involved and salary levels. Bona fide executive, administrative and professional employees (“EAP”) are exempt from these protections. Since 1940, the Department’s regulations have generally required each of three tests to be met for the FLSA’s EAP exemption to apply: (1) employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (“salary basis test”); (2) the amount of salary paid must meet a minimum specified amount (“salary level test”); and (3) the employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations (“duties test”). The Department of Labor last updated those regulations in 2004, when it set the weekly salary level at $455 ($23,660 annually) and also introduced an exemption for highly compensated employees.

The new regulation updates the salary level required for exemption at $913 per week or $47,476 annually for a full-year worker; sets the total annual compensation requirement for highly compensated employees subject to a minimal duties test to the annual equivalent of $134,004; and establishes a mechanism for automatically updating the salary and compensation levels every 3 years. The final rule also allows employers to use non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the new salary levels. The final rule makes no changes to the duties tests.

The effective date of the final rule is December 1, 2016. The initial increases to the standard salary level (from $455 to $913 per week) and the highly compensated employee total annual compensation requirement (from $100,000 to $134,004 per year) will be effective on that date. Future automatic updates will occur every 3 years, beginning on January 1, 2020.

Employers have a number of options to deal with the new regulations. They can increase the salaries of the EAP employees to place them in the exempt category in order to avoid paying overtime. They can reclassify the affected employees as nonexempt, but require them to keep track of hours and either prevent or limit overtime.

If you have any questions regarding these new requirements, you should contact an experienced employment lawyer.


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