Hi everyone – Earlier today, the White House announced the publication of its final overtime rule, which the Administration says will extend overtime eligibility to more than 4 million additional workers within the first year of implementation.
The rule, which will be effective December 1, significantly increases the minimum salary level for “white collar” employees to qualify as exempt from overtime pay requirements. Under the new rule, no employee who has a guaranteed salary of less than $47,476 will qualify as exempt under the executive, administrative, or professional exemptions. That’s more than double the current minimum salary level of $23,660 and only slightly lower than the Labor Department’s proposed $50,440. The rule will not affect hourly or other non-exempt workers, who already are eligible for overtime pay.
Additionally, the final rule includes a mechanism for automatically updating the salary threshold every three years (a change from the proposal of yearly adjustments). The next automatic update to the salary threshold would be on Jan. 1, 2020, and the new salary level will be announced 150 days before it takes effect. The minimum salary level is set based on the 40th percentile of wages of full-time salaried employees in the lowest wage Census region (currently, the South).
Importantly, the Labor Department decided not to make changes to the “duties test,” part of the three-pronged test for establishing exemption from overtime eligibility. They were going to do this which would have made tracking exempt and non-exempt duties difficult. So with no changes to the duties test, the basic test for determining who in your organization remains exempt from overtime eligibility under the executive, administrative, or professional exemptions is as follows:
- The employee must make over the new salary threshold of $47,476;
- The employee must be salaried;
- The employee must perform exempt duties (executive, administrative, or professional).
The Labor Department has prepared a fact sheet confirming that there is no exemption from overtime requirements for nonprofit employers. The fact sheet does outline some options for nonprofit employers to comply with the new salary threshold.
Many organizations will now shift their focus to a potential legislative solution from Congress. Because President Obama has signaled a willingness to veto any attempt to block enforcement of the final rule, any legislative solution is likely to be successful only if it has broad support from Congress; they must be willing to override a presidential veto.
The national association that ACL belongs to, along with many others, intends to continue to work toward a legislative solution to keep DOL’s overtime rule from taking effect in December, and will continue to share updates on this important issue as they become available. We will keep you updated as well.
ACL will send a link to a message that you can send your federal representatives in the next few days if you want to help with this effort.
There are links at the end of this email – the FINAL RULE link is to the Federal Register, which won’t post the final rule in its usual format until May 23, 2016. It is, however, available in PDF format so you can still get it from the link, you just have to look around a bit for the link to the PDF.
The following all comes from the DOL website at https://www.dol.gov/whd/overtime/final2016/index.htm
Final Rule: Overtime
Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees under the Fair Labor Standards Act
On May 18, 2016, President Obama and Secretary Perez announced the publication of the Department of Labor’s final rule updating the overtime regulations, which will automatically extend overtime pay protections to over 4 million workers within the first year of implementation. This long-awaited update will result in a meaningful boost to many workers’ wallets, and will go a long way toward realizing President Obama’s commitment to ensuring every worker is compensated fairly for their hard work.
In 2014, President Obama signed a Presidential Memorandum directing the Department to update the regulations defining which white collar workers are protected by the FLSA’s minimum wage and overtime standards. Consistent with the President’s goal of ensuring workers are paid a fair day’s pay for a hard day’s work, the memorandum instructed the Department to look for ways to modernize and simplify the regulations while ensuring that the FLSA’s intended overtime protections are fully implemented.
The Department published a Notice of Proposed Rulemaking (NPRM) in the Federal Register on July 6, 2015 (80 FR 38515) and invited interested parties to submit written comments on the proposed rule at www.regulations.gov by September 4, 2015. The Department received over 270,000 comments in response to the NPRM from a variety of interested stakeholders. The feedback the Department received helped shape the Final Rule.
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 nondiscretionary 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. However, DOL will not enforce the rule against certain DD programs from December 1, 2016 through March 17, 2019. It announced a time-limited non-enforcement policy for providers of Medicaid-funded services for individuals with intellectual or developmental disabilities in residential homes and facilities with 15 or fewer beds. Sixteen or more bed programs must comply.
Although the Office of Management and Budget (OMB) has reviewed and approved the Final Rule, the document has not yet been published in the Federal Register. The Final Rule that appears in the Federal Register may contain minor formatting differences in accordance with Office of the Federal Register publication requirements. The OMB-approved version is being provided as a convenience to the public and this website will be updated with the Federal Register’s published version when it becomes available.
Informational Webinars on the Overtime Final Rule Register Here
Additional Information
Final Rule
Overtime Overview
Questions and Answers
Fact Sheet:
Overtime Final Rule (PDF)
Final Rule: Non-Profit
Final Rule: Higher Education
Final Rule: States and Local Governments
Guidance for Businesses
General Guidance
Non-Profit Guidance
Higher Education Guidance
Comparison Table: Current Regulations, Proposed Rule, and Final Rule
Small Business Guide
DOL Overtime Page
Overtime NPRM Page
Blog Posts
DOL Blog: Who Benefits from the New Overtime Rule (May 18, 2016)
DOL Blog: Plenty of Options with New Overtime Rule (May 18, 2016)
Huffington Post: Fair Pay for Postdocs: Why We Support New Federal Overtime Rules (May 17, 2016)