On May 18, the Department of Labor (DOL) published its final rule, "Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees," updating overtime pay regulations for white collar exemptions. The Final Rule updates the salary and compensation levels needed for white collar workers to be exempt from overtime. Key changes in the new rules include:
- Increasing the standard salary level to the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region (currently the South), which is $913 per week or $47,476 annually for a full-year worker;
- Increasing the total annual pay 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, which is $134,004;
- Establishing a mechanism to automatically update the requisite salary levels every three years; and
- Amending 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 salary level.
The Final Rule becomes effective on December 1, 2016 with respect to the initial increase to the standard salary level (from the current rate of $455 per week to $913 per week) and the annual compensation requirement for highly compensated employees (from the current rate of $100,000 to $134,004 per year). The first time that these new rates will be subject to automatic update will be on January 1, 2020.
The publication and implementation of updated overtime rules has been more than two years in the making. In March of 2014, President Obama issued a memorandum directing the DOL to modernize the rules, and in July of 2015, the agency published a Notice of Proposed Rulemaking proposing updates to regulations governing which executive, administrative and professional employees may be eligible for exemption from minimum wage and overtime pay requirements under the Fair Labor Standards Act. The Comment Period on this Notice ended on September 4, 2015 and, prior to the Final Rule's publication, speculation was rampant on what it would require and when employers would need to comply with it.
Now that some of these question have been answered, announcement of the new rule has raised many more questions for employers. While HEC continues its analysis of the voluminous Final Rule, the Department of Labor has published several resources that may provide additional insight for employers seeking it. These resources include: