In 2014, President Obama directed the Secretary of Labor to update the overtime regulations to reflect the original intent of the Fair Labor Standards Act, and to simplify and modernize the rules so they’re easier for workers and businesses to understand and apply. The department has issued a final rule that it claims will put more money in the pockets of middle class workers – or give them more free time.
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 means that:
- Starting in December, anyone who is a salaried worker and makes less than $47,476 must be paid time and a half for any work beyond 40 hours a week;
- The total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test is raised to $134,004 annually; and
- A mechanism will be put in place for automatically updating the salary and compensation levels every three years.
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.
One important aspect of the new rule is that it does not change the Standard Duties Test for executive, administrative, and professional employees.
The attorneys in Lacy Katzen’s Corporate department understand the intricacies of the final rule and its applicability to a wide variety of businesses. Please contact us if you need your current employee classification and wage policies and procedures evaluated.