Yesterday morning, the U.S. Department of Labor released a long-awaited update to the overtime rules under the federal Fair Labor Standards Act. Employers are advised to ensure that they are prepared to raise salaries to meet the minimum thresholds, pay overtime when appropriate, or otherwise adhere to the new rules well before the December 1, 2016 implementation date.
The federal overtime provisions are contained in the Fair Labor Standards Act (FLSA). Unless exempt, employees covered by the Act must receive overtime pay for hours worked over 40 in a workweek at a rate not less than time and one-half their regular rates of pay. In order to be exempt from overtime (i.e., not entitled to receive overtime), an exemption must apply. In order for an exemption to apply, an employee’s specific job duties and salary must meet certain minimum requirements. Until this morning, the “salary test” required workers to make at least $23,660 per year in order to be exemption from the overtime rules.
In March 2014, President Obama directed the Secretary of Labor to update the overtime regulations in the FLSA. After circulating Notice of Proposed Rulemaking and receiving more than 270,000 comments, the U.S. Department of Labor issued this morning a final rule that significantly raises the minimum salary threshold for exemptions from overtime rules. The Department of Labor estimates the rule will impact over 4 million workers.
The final rule:
Raises the salary threshold from $455 per week ($23,660/year) to $913 per week ($47,476/year).
Automatically updates the salary threshold every three years, based on wage growth, beginning January 1, 2020. (The salary threshold is estimated to be $51,168 in 2020.)
Raises the total annual compensation requirement for highly compensated employees subject to a minimal duties test from $100,000 to $134,004
Despite rumors to the contrary, the rule does not make any changes to the duties test for executive, administrative and professional employees.
The rule goes into effect December 1, 2016. The increases to the standard salary level and for highly compensated employee annual compensation requirement will be effective on that date.
The Department of Labor, Wage and Hour Division’s Fact Sheet on the Final Rule is available here.
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