New Overtime Regulations From the U.S. Department of Labor

On May 18, 2016, President Obama and Secretary of Labor Perez announced the publication of the Department of Labor’s final rule updating the overtime regulations. The Department of Labor states that this will automatically extend overtime pay protections to over 4 million workers within the first year of implementation.

The Department of Labor states the Final Rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt as follows:

1. The Rule 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). This is the so-called automatic overtime limit. This is more than double the amount previously set back in 1975;
2. The Rule 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. The Rule also 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.
4. 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 Final Rule becomes effective December 1, 2016. As a result of this regulation, businesses should immediately start tracking hours for all employees making less than the $47,476 threshold—regardless of whether such employee is currently considered “hourly” or “salaried.”