New FLSA Rule Expected to Extend Overtime Pay Protections to over 4,000,000 Workers
May 19, 2016
By: K. Brad Oakley
The Fair Labor Standards Act (“FLSA”) applies to employees of enterprises that have an annual gross volume of sales made or business done of $500,000 or more. On May 18, 2016, the Department of Labor (“DOL”) released the final updated version of the regulations governing which executive, administrative, and professional employees are entitled to overtime pay protections under the FLSA. The regulations were last updated in 2004.
Under the former rule, a “white collar” employee generally must meet the following qualifications in order for the overtime exemption to apply:
- Be salaried, meaning that they are paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the “salary basis” test);
- Be paid more than $455/weekly (the equivalent of $23,660/annually) (the “salary level” test); and
- Primarily perform executive, administrative, or professional duties, as provided in the DOL’s regulations (the “duties” test).
For the exemption to apply, an employee’s specific job duties and salary must satisfy all of these requirements. Job title alone does not determine exempt status.
In the final rule, the DOL makes the following changes to the overtime exemption qualifications:
- Increases the salary threshold for overtime eligibility for full-time workers to $913/weekly (the equivalent of $47,476/annually). This is the 40th percentile of weekly earnings for full-time workers in the lowest-wage Census Region (currently the South).
- Increases the total annual compensation requirement needed to exempt highly compensated employees (“HCE”) from overtime eligibility to $134,004/annually (increased from $100,000). This amount is the 90th percentile of earnings of full-time salaried workers. The employee must also be paid their annual compensation at least $913 weekly and pass a minimal duties test.
- Allows the use of nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the standard salary level.
- Includes a mechanism to automatically update the standard salary level requirement every three years to ensure that the salary level test remains realistic. The standard salary level will be updated to maintain a threshold equal to the 40th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region. The DOL will publish all updated rates in the Federal Register at least 150 days before their effective date and post them on the Wage and Hour Division’s website.
The effective date of the final rule is December 1, 2016. Future automatic updates to these thresholds will occur every three years, beginning on January 1, 2020.
The DOL believes that the final rule will extend overtime pay protections to over four million workers within the first year of implementation.
This article was authored by K. Brad Oakley, Jackson Kelly PLLC.