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DOL Issues Final Overtime Rule

On May 18, 2016, the Department of Labor (DOL) issued the final version of a much-anticipated overtime exemption rule, raising the minimum salary threshold required to qualify for the Fair Labor Standards Act's (FLSA) "white collar" overtime exemption to $47,476 per year. This rule will broaden federal overtime pay regulations to include more than 4 million more people. The rule will take effect on December 1, 2016. A proposed version of the rule that was issued last year had set the threshold at an estimated $50,440 per year, but the DOL lowered that figure by about $3,000 in the final version. The salary threshold will be automatically updated every three years to ensure it stays at the 40th percentile benchmark. The first salary threshold raise will occur on January 1, 2020, and is projected to raise the salary threshold to around $51,000. Under previous regulations, employees had to meet certain tests related to job duties, and be paid at least $455 per week ($23,660 annually) on a salary basis, to be exempt from minimum wage and overtime requirements under the Fair Labor Standards Act exemptions for executive, administrative, professional, outside sales and computer employees. But the final rule calls for raising that salary level, last updated in 2004, to equal the 40th percentile of weekly earnings for full-time, salaried workers in the nation's lowest income region, bringing the salary level to $913 per week ($47,476 annually). That is more than double the current threshold under the FLSA white collar exemptions. For the first time, however, up to 10% of the minimum salary threshold ($4,747.60 under the $47,476 minimum salary threshold) can be met through the payment of nondiscretionary bonuses, incentive payments, and commissions, provided they are paid on at least a quarterly basis. Additionally, it is important to note that the salary exemption threshold for “highly compensated employees” has increased from $100,000 per year to $134,004 per year. This final rule will have serious implications for all employers, including colleges and universities, nonprofit organizations and small business owners. The most problematic change is a dramatic increase in the amount employees can earn and be considered exempt from overtime pay from $23,660 to $47,476.  This will be extraordinarily problematic for many employers to implement. To implement this new salary threshold by December 1, 2016, affected employers must either: (1) raise the salaries of formerly exempt employees to $47,476; (2) treat formerly exempt employees as non-exempt employees, paying them for overtime; and/or (3) treat formerly exempt employees as non-exempt employees, converting them to an hourly wage and hiring more part-time employees. When implementing this new salary threshold, it will be important for employers to emphasize to their employees that these changes are being made to comply with the DOL’s new overtime exemption rule, rather than to punish the employees. While determining what actions should be taken to comply with the new overtime exemption regulation changes, employers should take the time to examine all of their current wage and hour practices. This includes: (1) looking at job descriptions and duties; (2) training supervisors and employees to record their time and not work off of the clock; and (3) creating realistic expectations as to what can be accomplished in a forty hour workweek. These changes should be viewed as an opportunity to evaluate the internal practice wage and hour practices currently in place—such evaluations should be conducted through a self-audit or an audit performed by legal counsel. For more information about the ruling, click here .