The United States Department of Labor (DOL) has announced the issuance of its new final overtime regulations under the Fair Labor Standards Act (FLSA), a revision to the rules that will result in up to 4.2 million more United States workers being eligible for overtime compensation than are currently entitled to receive overtime. Though relatively consistent with the regulations originally proposed by the DOL in 2015, the final regulations do contain a few small surprises. The following summarizes the new final regulations based on the DOL’s announcement.
- New Salary Basis Threshold. In order to qualify as an exempt employee — one who is not entitled to overtime compensation — the DOL’s final regulations establish a new salary basis requirement for the FLSA’s “white collar” exemptions. While the current threshold is $455 per week ($23,660 per year), the new regulations double the salary basis threshold to $913 per week ($47,476 per year). This threshold was last raised in 2004. The DOL indicated that this threshold is based on the 40th percentile of full-time salaried employees in the lowest income United States Census region. An employee whose salary does not meet this new threshold cannot be exempt under the FLSA and, therefore, will be eligible for overtime compensation.
- Regular Updates to the Salary Basis Threshold. For the first time, the regulations provide for regular updates to the salary basis threshold. While this type of regular update was proposed by the DOL in 2015, most anticipated that it would be an annual increase. Instead, the final regulations call for automatic increases to the salary basis threshold every three years. The 40th percentile of full-time salaried employees in the lowest income region of the country will be used as the measure for this automatic increase.
- Increase in Threshold for “Highly Compensated Employees.” The threshold for an employee to be considered exempt under the highly compensated employee exemption will be raised from $100,000 to $134,004. This number is higher than the 2015 proposed regulations suggested.
- No Changes to “Duties” Requirements. The final regulations make no changes to the “duties” requirements of the “white collar” exemptions. Changes to the “duties” requirements had been held out by the DOL as a possibility when it issued its proposed regulations in 2015, though no specific changes to the “duties” requirements were proposed or given an opportunity for public comment. Thus, only the salary basis requirement of the “white collar” exemptions is changed by the new final regulations, and the 2004 “duties” test requirements remain the same.
- Counting Bonuses and Commissions. With the final regulations, the DOL announced that, for the first time, bonuses and commissions can be counted toward up to 10 percent of the salary basis threshold. Employers should carefully review this section of the regulations to ensure that they are properly applying this new concept.
- Deadline. Finally, the DOL surprised employers slightly by indicating that the new final regulations go into effect on December 1, 2016. The common wisdom had been that the effective date would be 60 days from the date the regulations were made final. Instead, the DOL provided employers with over six months to make necessary changes consistent with the new final regulations.