DOL Issues Long-Awaited Final Rule on Overtime Regulations

On
May 18, 2016, the Department of Labor (DOL) will finalize the rule implementing
revisions to the overtime regulations of the Fair Labor Standards Act. The
release of the rule ends months of intense speculation as to its major features-in
particular, prognostication about the new “white-collar” exemption salary threshold
and whether the final rule would alter the primary duty test.

According
to a May 17, 2016 White House
press release
,
the new rule will “extend overtime protections to 4.2 million more Americans who
are not currently eligible under federal law, and it is expected to boost wages
for workers by $12 billion over the next 10 years.”

As
discussed below, notable provisions in the final rule include:

  • The salary threshold
    is increased from $23,660 per year to $47,476 (or $913 per week);
  • The salary
    threshold will automatically update every three years;
  • The highly
    compensated employee exemption salary threshold is increased to $134,004;
  • The final rule
    does not change the current primary duty test; and
  • The final rule has
    an effective date of December 1, 2016.

White Collar Exemption Salary Threshold Increased
to $47,476

The final rule doubles the current salary
threshold for the so-called “white collar exemptions” (i.e., executive, administrative, professional, and computer
employees) from $23,660 a year to $47,476.  The threshold is pegged to the 40th
percentile of full-time salaried workers in the lowest-wage
Census Region, currently, the South.  Even though the final figure is several thousand dollars
below the $50,440 proposed by DOL last July, many employers believe the increase
is far too drastic.  In addition, for the
first time, employers will be able to count certain bonuses and incentive
payments (including commissions) toward as much as 10 percent of the salary
threshold, so long as these payments are made at least quarterly. Examples of
such payments include bonuses for meeting production goals, retention bonuses,
and commission payments based on a fixed formula.

Salary Threshold Will Automatically Update
Every Three Years

The new
rule provides that the salary threshold will update automatically every three
years, with the first update taking place on January 1, 2020.  The administration has projected that the
threshold will increase to $51,000 in 2020.  The DOL will publish all updated rates in the
Federal Register at least 150 days before their effective date, and also post
them on the Wage and Hour Division’s website.  A number of commentators have argued that this
indexing feature may be vulnerable to legal challenges, so stay tuned for
further developments.

Highly Compensated Employee Exemption Threshold
Increased to $134,004

The salary requirement for the highly compensated
employee exemption has increased by 34%, from $100,000 per year to $134,004-a
figure tied to the 90th percentile of full-time salaried workers nationally.  As with the white-collar salary threshold, the
highly compensated employee threshold will increase every three years.

No Change to “Primary Duty” Test

Significantly,
the final rule does not change the requirements of the current “primary duty”
test, which allows an employee to be exempt even if she spends less than 50% of
her time performing exempt duties, so long as her primary duty or duties are exempt duties.  While the DOL’s proposed regulations did not
offer any specific changes to the primary duty test, the Department did invite
comments on whether any adjustments were necessary, fueling speculation about whether
the rule would impose a strict new standard akin to the one currently in place
in California.

The
New Standards Become Effective on December 1, 2016

As
something of a silver lining for employers, the final rule has an effective
date of December 1, 2016, giving employers nearly 200 days to comply after the
rule’s final publication in the Federal Register.
 This far exceeds the 60 days that many
commentators were anticipating and gives employers significantly more time to
come into compliance with the new rule.  The DOL has released three technical guidance documents
designed to help private employers, non-profit employers, and institutions of
higher education come into compliance with the new rule.

In
addition to the above, these new overtime rules will have an effect on
government contracts.  Government
contractors should review their contracts to determine the impact these changes
may have on their contract performance, direct and indirect rates, and pricing.

FortneyScott’s subject matter experts will present a complimentary
webinar to discuss the details of the regulations and modes of response on May 25,
2016.  To register, CLICK
HERE
.