The new federal overtime rule has been highly anticipated since President Obama's Presidential Memorandum was signed in 2014. It was then that the President first directed the Department of Labor to update its regulations establishing white collar workers are protected by the Fair Labor Standards Act's minimum wage and overtime standards. On May 18, 2016, publication of the Department of Labor's final rule was announced. The Final Rule will update the overtime regulations and automatically extend overtime pay protections to approximately 4.2 million so-called "white collar" workers within the first year of implementation.
What the New Final Rules Basically Accomplishes
The final rule adjusts the minimum salary level that must be met before an employee can be exempt from overtime. The minimum salary threshold will increase to $913 per week, $47,476 annually. This is more than double the current federal threshold of $23,660 a year. What this means is that, any worker who is paid less than this threshold amount will be guaranteed overtime pay.
Who this Rule Really Affects
The purpose of this minimum salary threshold is to distinguish executive, administrative or professional employees, who are exempt from the overtime requirements, from other hourly workers who must be paid overtime pay. This new salary threshold does not apply to teachers, doctors, lawyers, or other exempt professionals who are not currently subject to the salary basis or salary level tests.
How is the Highly-Compensated Employee Exemption Affected?
The final rule also raises the threshold salary required to qualify for the highly-compensated employee exemption. The current minimum salary is $100,000 annually, which will change to approximately $134,004 annually.
The final rule becomes effective December 1, 2016
Basically, all covered employers have until December 1, 2016 to make necessary changes to their pay schemes. After that date, they could potentially be held liable for overtime pay violations in subsequent workweeks for up to 3 years after each violation, including liquidated damages and attorneys' fees.
Main Provisions of the Final Rule
The purpose of the Final Rule is primarily updating the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt. Specifically, the Final Rule provides as follows:
- 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.
While the effective date of the final rule is December 1, 2016, future automatic updates to these thresholds will be implemented every three years, beginning on January 1, 2020.
If you feel you have received fair wages or overtime pay to which you were entitled, or if you have any questions regarding your employment rights, please contact Wrady & Michel, LLC, either online or by calling us at (205) 265-1880.