DOL Issues Long Awaited Revised Overtime Standards
May 18, 2016 by Jason C. Taylor, Partner
The wait is over. Whether for or against, employers and employees now know what the final rule addressing the overtime standards will require when it becomes effective on December 1, 2016. Probably the most critical component of the revised standards, the salary requirement, represents an increase of slightly more than double the prior rate. The new salary standard for exempt employees is $47,476 annually or $913 per week (from the previous amount of $23,660/$455 per week). While not as high as originally stated in the proposed rule, the effect will be dramatic for large numbers of employers and employees. The salary tests (first that a salary is paid to the employee, and second the salary amount) are the initial and most clear standards employers will have to meet to be able to exempt a position from overtime requirements. Fortunately, the final rule will permit employers to use up to 10% of any nondiscretionary bonus or commission payments to meet the salary amount, but those incentive payments must be made at least quarterly. If you have a business or are employed in American Samoa, the new rate is $767 per week. For the film industry, the new rate is $1,397 per week. (Bruce Willis probably does not have to worry.)
In addition to addressing the standard salary amount, the final rule also increases the salary requirements for highly compensated employees (HCEs) to $134,004 annually (previously $100,000). This is higher than the amount in the proposed rule, which was approximately $123,000 annually. With the exception of the amount, however, it appears employers will continue to be able to use nondiscretionary bonus and commission payments to meet that amount, provided HCEs receive at least a set salary at the non-HCE amount of $47,476.
The final rule did not modify the duties tests, which will at least allow employers to focus on the same, less than uniform, enforcement standards from those tests. Based on the Fact Sheet from the Wage and Hour Division (https://www.dol.gov/whd/overtime/final2016/overtime-factsheet.pdf), the agency anticipates the increase in the salary requirement will eliminate many of the questionable positions that may not meet the standards for the exemptions.
The salary standards will be updated every three years, but that process will not begin until January 1, 2020.
The changes from the final rule are not effective until December 1, 2016, more than six months away. Procrastination is natural and summer vacation for many falls in that time period, as well as Thanksgiving and many other excuses to postpone action or delay in addressing the issues caused by the new standards. While rash action is not often beneficial, it is important to start thinking now about how these changes will affect your business and determining what solutions are viable (and legally compliant).
Please let us know if we can help you prepare.
Jason C. Taylor, Partner