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U.S. Department of Labor Unveils New Overtime Regulation

May 18, 2016 E-Alerts

Today, the United States Department of Labor’s Wage and Hour Division finalized its much anticipated revisions to the rules governing overtime compensation. The revisions in part, increase the income level of those who are exempt from overtime pay to $47,476.00. This almost doubles the prior threshold of $23,660.00 and allows a greater number of employees to qualify for overtime pay to as many as an additional 4.2 million employees.

These new regulations, which employers have until December 1, 2016 to comply with, include the following:

• The salary threshold will be increased to $47,476.00 annually ($913.00/week)—an increase of slightly more than 100% from the current threshold of $23,660.00 annually ($455.00/week). It should be noted that the proposed level was $50,440.00 annually ($970.00/week).

• There will be no changes to the duties test. The Department of Labor had indicated it was considering adding a quantification component similar to California’s that would have required employers to show an employee was performing exempt duties a certain percentage of time to qualify under the specific exemption.

• The salary threshold will be updated every three (3) years and tied to the 40th percentile of full-time salaried workers in the lowest wage region of the country (currently the Southeast). The proposal had the automatic updates occurring annually but was unclear on the methodology for the updates.

• Employers will have until December 1, 2016 to come into compliance with the new requirement—a period of about 200 days. The proposal did not include an implementation period but there were suggestions it could be as short as 60 days.

• No indication about how commissions/bonuses/incentive based pay will be treated. The Department of Labor sought comments on whether to give a 10% credit for these types of compensation.

In this same context, employers have experienced invigorated pay investigations during compliance reviews, and have already started seeing compliance officers inquire about compliance with Federal Minimum Wage standards. Consistent with its pay enforcement agenda, it is expected that there will be a number of inquiries about compliance with these new overtime standards once they go into effect.

While the United States Chambers of Commerce and other organizations are disappointed with this final proposal, there is no doubt that this rule will present significant challenges for both employers and employees in the private, public, and non-profit sectors, and add to the regulatory burden placed upon businesses.