It’s a shoe that employers have been expecting to drop: Today, the Department of Labor announced the final Fair Labor Standards Act (FLSA) overtime rule change, which will increase the exempt salary threshold to $47,476 a year, more than twice the current salary threshold of $23,660. This is slightly less than the $50,400 that was proposed in 2015. The rule will affect millions of workers and will take effect as of December 1, 2016.
From the DOL page: 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:
- 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);
- 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
- 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. The initial increases to the standard salary level (from $455 to $913 per week) and HCE total annual compensation requirement (from $100,000 to $134,004 per year) will be effective on that date. Future automatic updates to those thresholds will occur every three years, beginning on January 1, 2020.
- DOL Frequently Asked Questions (FAQ) on new rule
- Comparison Table: Current Regulations, Proposed Rule, and Final Rule
- Guidance for employers in the private sector
- Guidance for employers in the nonprofit sector
- Guidance for employers in higher education
U.S. Department of Labor Blog: Plenty of Options with New Overtime Rule
Economic Policy Institute report: The new overtime rule will directly benefit 12.5 million working people
As the tables show, raising the overtime salary threshold will directly benefit a broad range of working people, including:
- 6.4 million women, or 50.9 percent of all directly benefiting workers
- 4.2 million parents and 7.3 million children (under age 18)
- 1.5 million blacks (who make up 8.9 percent of the salaried workforce but 12.0 percent of directly benefiting workers), and 2.0 million Hispanics (who make up 11.8 percent of the salaried workforce but 16.0 percent of directly benefiting workers)
- 3.6 million workers age 25 to 34 (who make up 22.9 percent of the salaried workforce but 28.7 percent of directly benefiting workers)
- 4.5 million millennials, defined as workers age 16 to 34 (who make up 28.2 percent of the salaried workforce but 36.3 percent of directly benefiting workers)
- 3.2 million workers with a high school degree but not more education (who make up 15.5 percent of the salaried workforce but 25.3 percent of directly benefiting workers)
Employment Law Commentary & Resources on Overtime Rule
Jon Hyman, Ohio Employer’s Law Blog
I scream, you scream, we all scream … for the FLSA’s new salary test
Employers, you have a little more than six months to get your wage-and-hour houses in order. You need to figure out which of your exempt employees make less than $47,476, and determine what you are going to do with them—switch them to non-exempt or gross-them up to the new salary level.
If you switch them to non-exempt, you will have to deal with the employee-relations issues that arise from tracking (or restricting) overtime and limiting flexibility. If you gross them up to keep them exempt, you will have to deal with the employee-relations issues that arise from salary contraction. Will your manager be happy that she is being paid nearly the same as her assistant manager / supervisee?
Eric B. Meyer, The Employer Handbook
The new DOL overtime rules are here. You’ve got HR questions? I have answers!