Final Ruling Exempt Employees & Overtime

The Department of Labor issued the long-anticipated final overtime rule yesterday. The rule takes effect December 1st, 2016. Under the new rule, employees who earn as much as $47,476 a year ($913 a week) will have to be paid overtime, even if they meet one of the standard management, professional or administrative exemptions. That threshold will rise every three years. The new rule does allow up to 10% of that minimum to be in the form of non-discretionary incentive pay as long as employers pay those amounts on a quarterly or more frequent basis.

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:
Sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South ($913 per week; $47,476 annually for a full-year worker);

Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004); and

Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.

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