May 23, 2016Alerts

The New DOL Overtime Rules Have Arrived. Here's What You Need To Know

The New DOL Overtime Rules Have Arrived. Here's What You Need To Know

On May 18, 2016, the United States Department of Labor (DOL) announced the publication of its Final Rule updating the overtime regulations, which will automatically extend overtime pay protections to over 4 million workers. Below is a Q & A summary prepared by Scott Holt, a partner in Young Conaway’s Employment Law Section, of some of the new rule’s key provisions:

When does the New Rule take effect?

The Final Rule will take effect December 1, 2016. All employers subject to the FLSA’s requirements need to be in compliance with the Final Rule on or before that date.

What is the new salary level requirement for exempt employees?

The Final Rule sets the standard salary level at $913 per week, equivalent to $47,476 per year for a full-year employee. This amount is based on the 40th percentile of weekly earnings of fulltime salaried workers in the lowest-wage Census Region (currently the South).

Did the salary level requirement for the Highly Compensated Employee exemption change?

Yes, the Final Rule sets the Highly Compensated Employee (HCE) total annual compensation level equal to $134,004 annually. This amount is based on the 90th percentile of earnings of full-time salaried workers nationally.

Will the new salary levels be automatically updated?

Yes. The Final Rule includes a mechanism to automatically update the standard salary level requirement every three years. Specifically, the standard salary level will be updated to maintain a threshold equal to the 40th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region. Similarly, the Final Rule includes a mechanism for automatically updating the HCE compensation level to maintain the threshold equal to the 90th percentile of annual earnings of full-time salaried workers nationally. The first update of the salary levels will occur on January 1, 2020.

Does the Final Rule apply to public sector employers and nonprofit organizations?

Yes, any employer subject to the FLSA, which includes most public sector employers and many non-profits, must comply with the Final Rule requirements.

Does the Final Rule allow an employer to include bonuses or incentive payments in the new salary level requirements?

Yes, according to the DOL, employers will be able to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary level. This would include, for example, nondiscretionary incentive bonuses tied to productivity and profitability. In order for these bonuses and payments to count toward a portion of the standard salary level test, they must be paid on a quarterly or more frequent basis. The DOL also indicates that employer may make a “catchup” payment, but such a payment would be capped at 10 percent of the required salary amount. Notably, the inclusion of these bonuses and payments does not apply to the salary level requirement for HCEs.

Did the Final Rule change the duties test of the overtime exemptions?

No. Both the standard duties test and the HCE duties test remain unchanged.

What steps does the DOL recommend employers take in order to comply with the Final Rule?

The DOL provides four options for employers to consider. For each affected employee newly entitled to overtime pay, employers may:

• increase the salary of an employee who meets the duties test to at least the new salary level to retain his or her exempt status;

• pay an overtime premium of one and a half times the employee's regular rate of pay for any overtime hours worked;

• reduce or eliminate overtime hours;

• reduce the amount of pay allocated to base salary (provided that the employee still earns at least the applicable hourly minimum wage) and add pay to account for overtime for hours worked over 40 in the workweek, to hold total weekly pay constant; or use some combination of these options. In sum, the Final Rules have been announced and employers will have approximately six (6) months to come into compliance.

Employers are strongly encouraged to prepare and conduct a wage and hour audit of their pay practices to ensure they are in compliance with the FLSA requirements.

Young Conaway's Employment Law Section will be conducting a presentation in the near future on these new rules and how to conduct a wage and hour audit.

Employment Law eAlerts are published by Young Conaway Stargatt & Taylor, LLP as a summary of recent developments in labor and employment law and are not intended to be, nor should they be, considered legal advice.

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