Department of Labor Issues Final Rule Expanding Overtime Eligibility

In a highly anticipated announcement, the U.S. Department of Labor (DOL) published its Final Rule on May 18, 2016, implementing President Obama’s March 13, 2014 directive to “modernize and streamline the existing overtime regulations.” This new Rule will take effect Dec. 1, 2016 and, based on DOL estimates, will expand overtime protection to cover more than 4.2 million additional workers. The Final Rule also significantly expands overtime eligibility while recognizing some of the concerns employers brought forth during proposed rulemaking.

Details of the Final Rule will be examined in the coming days, but below is a summary of key takeaways:

• The salary-level threshold for most overtime-exempt employees (the “white collar” exemptions) will more than double from $455 per week to $913 per week ($23,660 to $47,476 per year). This is slightly lower than the change the DOL originally proposed.
• The salary-level threshold for “highly compensated” employees will increase from $100,000 per year to $134,004 per year. This is slightly higher than the change the DOL originally proposed.
• There is no “phase-in” for the new salary thresholds (i.e., the increase will become effective in full on Dec. 1, 2016).
• These figures will be automatically updated by the DOL every three years to maintain consistency and keep pace with inflation. The first update will occur Jan. 1, 2020, at which time the white collar salary-level test is expected to reach more than $51,000.
• The DOL will update the salary threshold every three years so it equals the 40th percentile of full-time salaried workers in the lowest income Census region (currently the South).
• The DOL will update the “highly compensated” employee threshold every three years to equal the 90th percentile of full-time salaried workers nationwide.
• The DOL originally proposed updating these numbers annually.
• Up to 10 percent of an employee’s standard salary level can come from non-discretionary bonuses, incentive payments and commissions, paid at least quarterly. This new provision allows employers to take advantage of certain non-salary payments to help reach the required threshold.
• Although the DOL originally suggested that updates to the exempt “duties tests” may be forthcoming, the Final Rule does not include any such changes.

The DOL has released a number of resources to accompany its announcement:

• Fact sheet
• Frequently asked questions
• Guides for small businesses, non-profits, higher education, and state and local governments
• Technical guidance for private employers, non-profits, and higher education
• Non-enforcement policy for certain Medicaid-funded providers

We previously reported on this issue in 2014 when President Obama directed the DOL to propose changes to the FLSA and in 2015 when the DOL issued its Notice of Proposed Final Rulemaking. We will continue to provide further updates as the Final Rule is analyzed in detail.

Until then, for additional information on the new regulations and how they will affect your business, please contact the authors, your McGuireWoods contact, or a member of the firm’s labor and employment group.