The United States Department of Labor (the DOL) has released its Final Rule that will broaden federal overtime pay regulations to cover 4.2 million additional workers who are currently exempt from overtime eligibility. The Final Rule updates the regulations governing which executive, administrative, and professional employees are entitled to minimum wage and overtime pay protections under the Fair Labor Standards Act (the FLSA).
The FLSA requires employers to pay its “non-exempt employees” overtime (1 ½ the workers’ “regular rate of pay”) for all hours worked in excess of forty (40) per week. The DOL’s regulations implementing the FLSA set forth a variety of employment classifications that are “exempt” from the FLSA’s overtime requirement, including employees performing executive, administrative, and/or professional job duties. In order for an employee to qualify as an exempt “white collar” employee, he/she must meet three “tests”: (1) 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; (2) the amount of salary paid must meet a minimum specified amount; and (3) the employee’s job duties must primarily involve executive, administrative, or professional duties (as defined by the regulations). The DOL last updated these regulations in 2004, setting the minimum salary threshold at $455 per week (or $23,660 annually).
The DOL’s Final Rule raises the minimum salary level for exempt employees to $913 per week (or $47,476 annually) and increases the total annual compensation requirement needed to exempt “highly compensated employees” to $134,004 annually (previously set at $100,000). Additionally, the Final Rule establishes a mechanism for automatically updating the minimum salary level every three years. Finally, the Final Rule allows employers to use nondiscretionary bonuses and incentive payments to satisfy up to 10% of the new standard salary level. The Final Rule did not change the duties needed to qualify for the “white collar” exemption.
The Final Rule has been anticipated since the DOL released its proposed rule in July 2015. The Final Rule’s salary level increase is less than the proposed rule’s projected salary level of $970 per week (or $50,440 annually). However, the Final Rule’s salary level for “highly compensated employees” is more than the proposed rule’s projected salary level of $122,148. Finally, the Final Rule’s mechanism for automatically updating the salary level every three years is different than the proposed rule’s mechanism for automatically updating the salary level annually.
In an email yesterday, President Obama stated that the Final Rule “is a step in the right direction to strengthen and secure the middle class by raising Americans’ wages.” Vice President Biden, who characterized the Final Rule as “restoring and expanding access to the middle class,” is expected to promote the Final Rule today in Columbus, Ohio. Opponents of the Final Rule have argued that it places a huge cost and burden on employers and demotes millions of workers. Members of Congress who oppose the Final Rule have stated that they will attempt to block it during a mandated congressional review period. However, any such attempts are expected to be vetoed by President Obama.
The Final Rule will go into effect on December 1, 2016. Future automatic updates will occur every three years, beginning on January 1, 2020. Although the Final Rule does not become effective for several months, employers should be proactive and engage their legal counsel to begin planning for the change now. Preparations should include auditing current practices and projecting the cost of change and FLSA compliance under the anticipated new framework. This includes evaluating the possibility and effects of significantly higher operating costs.
This Newsletter is a publication of the Labor and Employment Department of the law firm of Brunini, Grantham, Grower & Hewes, PLLC located in Jackson, Mississippi. This Newsletter is not designed or intended to provide legal or professional advice, as any such advice requires the consideration of the facts of the specific situation.
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