New Rule Changes Which Employees Qualify As “Exempt” From Overtime Pay

LAURA A. BALSON

Partner

MARGARET A. GISCH

Partner


New Rule Changes Which Employees Qualify As “Exempt” From Overtime Pay

As On May 18, 2016, the U.S. Department of Labor (DOL) published the long-awaited changes to the overtime rules which dramatically increase the minimum salary that an employee must receive in order to be “exempt” from overtime pay, under the Fair Labor Standards Act (FLSA). These new rules apply to all employers, regardless of how many employees work at the company.

If an employee no longer qualifies as exempt, because of the change, then that employee must be paid time and a half for all time worked above 40 hours per week. In order to comply, employers are required to track all working hours of nonexempt employees, including early mornings, late nights, responding to emails on weekends, etc.

Key Provisions of the Final Rule

The Final Rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt. Specifically, the Final Rule:

  1. Sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South ($913 per week; $47,476 annually for a full-year worker);
  2. Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004); and
  3. Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.

Additionally, the Final Rule amends 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 standard salary level.

The effective date of the final rule is December 1, 2016, so employers across the country have only about 6 months to get into compliance.