Department of Labor Releases Final Overtime Regulations

Department of Labor Releases Final Overtime Regulations

After much anticipation, the Department of Labor (DOL) issued the revisions to Part 541 of the Fair Labor Standards Act (FLSA) overtime regulations on Wednesday, May 18, 2016.  So what do the revisions to Part 541 mean to employers today and in the near future?

The first and most significant change addresses the salary threshold that was last revised in 2004.

The salary threshold was set in August, 2004 and was $455 per week or $23,660 per annum.  Now, the salary threshold has been increased to $ 913 per week or $47,476 per annum under the new regulation.  This new threshold is based on the salary level of those in the 40th percentile of weekly earnings for full-time salaried workers.  The salary threshold is one of three tests that an employee must meet in order to be classified as exempt under FLSA regulations.  An exempt employee is an employee who is not required to be paid a minimum of at least one and one-half times their regular rate of pay for hours worked in excess of 40 hours per week, or who is exempt from overtime rules.

Additionally, based on the new regulations, the salary threshold will automatically escalate every three years based on projected wage growth.  The threshold is expected to rise to more than $51,000 with the first update on January 1, 2020.

Employees that are classified as exempt under FLSA rules must meet the salary threshold as noted above.  Meeting the salary threshold is one of three tests that must be met in order for the exemption to be valid.  The second test is the duties test.  The FLSA currently defines certain executive, administrative and professional, computer professionals and outside sales employees as exempt from the overtime provisions of the FLSA under what are called white collar exemptions.  The new regulations made no changes to the standard duties tests at this time.

The new regulations also provide for an increase in the salary threshold for highly compensated individuals who also have an exemption from overtime rules under the FLSA.  The DOL set the annual compensation level equal to the 90th percentile of earnings for full-time salaried workers at $134, 004 per annum.  This is an in increase from $100,000.

The DOL has required that each of three tests be met in order for one of the FLSA white-collar exemptions to apply.

  • The employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed;
  • The amount of salary must meet a minimum specified amount (salary threshold);
  • The employee’s job duties must primarily involve executive, administrative or professional duties as defined by the FLSA regulations.

The DOL emphasizes that a title alone does not automatically create an exemption.

Now that the final regulation has been issued by the DOL, this will take effect on December 1, 2016.  This means that employers will have to come into compliance with the new regulation by late 2016.  Employers should ensure that their employees are properly classified as either exempt or non-exempt based on the three tests for the white-collar exemptions.  Information on the job duties required to meet each of the exemptions can be found in the U.S. Wage and Hour Division of the DOL Fact Sheet #17B:  https://www.dol.gov/whd/overtime/fs17b_executive.pdf

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