DOL Releases Final Rule Outlining Updates to Overtime Rule
 

DOL Releases Final Rule Outlining Updates to Overtime Rule

On Tuesday, the Department of Labor released their final rule “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees” which outlines updates to the Department’s overtime rule.  

Background

Under the Fair Labor Standards Act (FLSA), employees must be paid overtime for any hours worked over 40 hours in a work week.  The FLSA contains exemptions for certain employees in “white collar” positions.  Currently, to be considered exempt, employees must: 

  1. be paid on a salary basis (the salary basis test)
  2. be paid more than $455/week which amounts to approximately $23,660 annually (the salary threshold)
  3. perform primary duties consistent with executive, professional or administrative positions (the duties test)

Elements of the Final Rule

The rule goes into effect December 1, 2016. These changes include:

Standard Salary Exemption Changes:

  • Sets the new standard salary threshold to $913 per week or $47,476 annually (up from $455/week) – the Executive, Administrative, Professional, Executive (EAP or “white collar” exemption)
    • This represents the 40th percentile for the lowest-wage census region in the nation, currently the South. 
    • This standard exemption will be tagged to the 40th percentile of workers in the lowest wage census region and will automatically update every three years, beginning January 1, 2020.
      • DOL must post the new standard exemption salary level 150 days in advance of the effective date (August 1, 2019 for the January 2020 update)
  • Allows up to 10% of the salary threshold to be met by non-discretionary bonuses, incentive pay, or commissions
    • These payments must be made on an at least quarterly basis. 

HCE Salary Exemption Changes: 

  • Sets the new highly compensated employee (HCE) exemption at $134,004 up from $100,000.
    • This represents the 90th percentile of full-time workers nationally. 
    • This HCE threshold will be tagged to the 90th percentile of workers nationally and will automatically update every three years, beginning January 1, 2020.
      • DOL must post the new HCE salary level 150 days in advance of the effective date (August 1, 2019 for the January 2020 update)

Compensatory Time:

  • The final rule does not take into account certain nuances of the profession like the spike in tax preparation work performed seasonally.  
    • Under the FLSA, only public agencies (states, a political subdivision of a state, or an interstate government agency, and some public universities that qualify as “public agencies”) may utilize compensatory “comp” time to cover overtime pay obligations.
    • According to DOL, “Private employers cannot satisfy their overtime obligations by providing comp time and must pay overtime-eligible employees an overtime premium for hours over 40 in a workweek.”  (Read more)