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Labor Department Issues Final OT Expansion Rule

On May 18, 2016, the U.S. Department of Labor issued the final version of an anticipated overtime exemption rule, more than doubling the minimum salary threshold required to qualify for the Fair Labor Standard Act’s Executive, Administrative and Professional exemptions (the “white collar” exemptions) from $23,660 per year ($455/week) to $47,476 per year ($913/week).    It also added a provision allowing employers to pay up to 10% of that minimum salary level by making “catch-up” payments at least quarterly through non-discretionary bonuses and commissions.  The rule also increases the annual compensation requirement for an employee to be exempt from overtime pay under the Highly Compensated Employee exemption to $134,004, up from the previous threshold of $100,000, however, the catch-up provision for meeting the $913/per week salary level is not permitted for this exemption.  The duties tests that must be met for the white collar exemptions to apply, remain in place and unchanged.

The changes come as a result of a Presidential Memorandum signed by President Obama in 2014, directing the Department to update the regulations defining which “white collar” workers are protected by the FLSA’s overtime and minimum wage standards.   The U.S. Department of Labor published a Notice of Proposed Rulemaking in the Federal Register in July of 2015 and invited interested parties to submit written comments on the proposed rule online by September of 2015.  The Department received nearly 300,000 comments in response from a variety of interested stakeholders, feedback which helped the Department to finalize the rule.

What do these rule changes mean for employees?  On December 1, 2016, when the final rule takes effect, employees who were previously exempt under the Executive, Administrative or Professional exemptions who earn a salary of less than $47,476, may now be entitled to overtime pay (teachers, doctors, and lawyers excluded).  Employers are considering their options as to whether to increase salaries to the threshold levels so current exempt employees can remain exempt, or change salaried employees who do not meet that salary threshold to an hourly pay structure and pay them overtime pay for any overtime hours worked.  In total, the new rule is expected to extend overtime protections to 4.2 million more Americans who are not currently eligible for overtime wages under federal law.