1. Summary of New Department of Labor Regulations
On May 18, 2016, President Obama and the Secretary of Labor, Thomas Perez, announced that the Department of Labor’s new rule updating overtime regulations will be published on May 23, 2016. The rule will be effective on December 1, 2016. Employers must be in compliance by that date.
Most significantly, this new rule will increase the salary threshold for executive, administrative, professional, outside sales, and computer employee exemptions from $455/week ($23,660 for a full-year worker) to $913/week ($47,476 for a full-year worker). This change will affect employees currently earning a salary between $455/week and less than $913/week, who satisfied the “duties test” for a related exemption. Although these employees previously were not entitled to overtime, they must now be paid time and a half for any hours worked over 40 per work week – even if they satisfy the “duties test” for a related exemption. This salary threshold will automatically increase every three years and is expected to rise to more than $51,000 by the next update on January 1, 2020.
In addition, the new rule increases the salary threshold for the highly compensated employee exemption from $100,000 to $134,004 per year. Under this rule, any employee earning more than $134,004 per year is ineligible for overtime.
2. New Overtime Regulations in Practice
All job descriptions should include whether the position is classified as exempt or non-exempt from overtime. This determination must be made based on the requirements of the Fair Labor Standards Act, in tandem with its implementing regulations.
In assessing an employee’s proper classification, employers must first consider whether the employee meets the salary basis requirement for an exemption. The salary basis requirement means that the employee must receive a predetermined amount of compensation, not less than $913 (formerly not less than $455) per week of each pay period and not reduced based on the employee’s quality or quantity of work. According to the new rule, up to 10% of this salary basis requirement may be met by non-discretionary bonuses, incentive pay, or commissions, provided that these payments are made on at least a quarterly basis. If an employee’s salary falls below the threshold, he or she is non-exempt and must be paid overtime for any hours worked in excess of 40 per workweek.
Second, an employer must apply a duties test to determine whether the employee satisfies any of the exemptions under the FLSA related to executive, administrative, and professional workers. If any of these exemptions apply, the employee is exempt from overtime.
Third, an employer must evaluate whether any of the other exemptions for outside sales, computer employees, highly compensated employees, blue collar workers, or police/fire fighters/paramedics/first responders apply. The highly compensated employee threshold has been increased to $134,004. If any of these exemptions apply, the employee is exempt from overtime.
3. Potential Considerations Based on New Overtime Regulations
Employers will have much to consider in order to ensure compliance by December 1, 2016. Recommended actions include:
- Assess the cost of (a) raising salaries of currently exempt employees earning less than $913/week to an amount equal to or greater than the threshold in order to maintain their exempt status, or (b) paying currently exempt employees who are making less than $913/week ($47,476 for a full-year worker) overtime.
- Classify employees who makes less than $913/week ($47,476 for a full-year worker) as non-exempt. Refrain from evaluating whether these employee satisfy the executive, professional, or administrative exemptions, unless considering a potential increase in salary.
- Evaluate whether highly compensated employees earning less than $134,004 per year may be classified as non-exempt, as they are potentially eligible for overtime.
- Confirm that highly compensated employees earning $134,004 or more are classified as exempt.
- Implement and vigorously enforce policies prohibiting employees from working overtime unless they receive prior authorization to do so.
Employers: Please do not hesitate to contact our office if you need assistance in ensuring compliance with this new overtime rule by drafting amended policies, communicating the changes to your employees, providing training to your staff, or reclassifying positions.
Employees should also confirm that their employers are complying with the new rule by taking the following actions:
- If making less than $913/week ($47,476 for a full-year worker), confirm that the employer is paying overtime for hours worked over 40 per workweek.
- Consider whether the position held falls under an exemption, such as executive, professional, or administrative duties, such that the employee is exempt from overtime.
Employees: Please do not hesitate to contact our office if you need assistance in asserting your right to overtime pay or confirming the appropriate classification of your position.
 FLSA Overtime Rule Resources at https://www.shrm.org/legalissues/federalresources/pages/overtime-rule-hub.aspx.
 See DOL Wage and Hour Division’s Fact Sheet #17A at https://www.dol.gov/whd/overtime/fs17a_overview.pdf.