Update (Nov. 28, 2016):
Federal judge delays overtime rule.
On March 13, 2014, President Obama signed a Presidential Memorandum directing the Department of Labor (DOL) to update the regulations defining which white-collar workers are exempt from the Fair Labor Standards Act’s (FLSA) minimum wage and overtime requirements. The FLSA establishes minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees in the private sector and in Federal, State, and local governments.
On July 6, 2015, the DOL issued a Notice of Proposed Rulemaking (NPRM) – Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees (80 Fed. Reg. 38515, July 6, 2015). The DOL has proposed to update and revise the regulations issued under the FLSA implementing the exemption from minimum wage and overtime pay for executive, administrative, professional, outside sales, and computer employees. To be considered exempt, employees must meet certain minimum tests related to their primary job duties and be paid on a salary basis at not less than a specified minimum amount. The standard salary level required for exemption is $455 a week ($23,660 for a full-year worker). The exemption standard was last adjusted in 2004.
Under the NPRM, the DOL has proposed to raise the salary threshold under which white-collar workers and highly compensated employees are exempt from FLSA overtime pay requirements. The DOL submitted its Final Rule to the Office of Management and Budget (OMB) for approval on March 14, 2016. The Final Rule will be published in the Federal Register
on May 23, 2016 and will take effect on December 1, 2016. However, pursuant to the Congressional Review Act, Congress has 60 days to review any new major regulation before it goes into effect and may nullify such a regulation with a Resolution of Disapproval. Since 1996, Congress has only disapproved one rule. The President, however, can veto such a Resolution.
Overview of Final Rule
- For employees whose salaries are equal to or less than $47,476 annually (the 40th percentile of weekly earnings for full-time salaried workers in the lowest-wage Census Region (currently the South)), employers must pay overtime (time and one-half the regular rate) for hours worked over 40 per week.
- This is a 101% increase from the current salary threshold of $23,660.
- Nondiscretionary bonuses and incentive payments (including commissions) can count towards the standard salary threshold.
- Small businesses are not exempt.
- The overtime exemption salary threshold for highly-compensated employees (HCE) will increase from $100,000 to
- $134,004 annually (the annualized weekly earnings of the 90th percentile of full-time salaried workers nationally).
- Automatic updates to the standard salary level and the HCE annual compensation requirements will occur every three years on the first of the year. The DOL will publish the updated rates in the Federal Register at least 150 days before their effective date. The first automatic update will take effect on January 1, 2020.
- DOL estimates that this change will make 4.2 million currently exempt workers eligible for overtime pay, assuming employers do not change employees’ salaries and/or relevant duties in order to avoid exemption.
- In response to the increased costs of newly nonexempt workers, some employers may reduce annual salaries to compensate for potential overtime or may convert salaried workers to hourly workers. Other employers may increase salaries to avoid the overtime requirement.
For more information, please contact Amy Callender, Director of Government Affairs for NATA, at (972) 532-8853