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Friday, October 7, 2016

Changes in White Collar Overtime Regulations

***UPDATE***  11/28/16
Only days before Obama's "Final Rule" overtime reform was to take effect, federal courts have blocked the labor legislation by putting a nationwide preliminary injunction in place.  None of the provisions outlined below are slated to come into effect until further notice.
 
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 non-discretionary 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.

Three Tests Must Be Met in Order to Claim a White Collar Exemption
The regulations implementing the white collar exemptions generally require individuals to satisfy three criteria to be exempt from overtime requirements:

• First, they must be paid on a salary basis not subject to reduction based on quality or quantity of work (“salary basis test”) rather than, for example, on an hourly basis;

• Second, their salary must meet a minimum salary level, which after the effective date of the Final Rule will be $913 per week, which is equivalent to $47,476 annually for a full-year worker (“salary level test”); and

• Third, the employee’s primary job duty must involve the kind of work associated with exempt executive, administrative, or professional employees (the “standard duties test”).



Options for Compliance for Employers Who Might be Impacted by the Final Rule
Employers have a wide range of options for responding to the changes to the salary level, and the Department does not dictate or recommend any method. Organizations may ensure compliance for those employees affected by the Final Rule in a number of ways, including providing pay raises that increase workers’ salaries to the new threshold, spreading employment by reducing or eliminating work hours of individual employees working over 40 hours per week for which no overtime is being paid, or paying overtime.



Conclusion

The overtime rule updated the regulations to ensure that the FLSA’s intended overtime protections are fully implemented, and to simplify the identification of overtime-eligible workers, making the exemption easier for employers and workers to understand and apply. This guidance is provided to help employers understand their responsibilities and options for complying with the FLSA’s overtime provisions following publication of the Final Rule.