Final White Collar Overtime Rule—The Guessing and Waiting Game are Over!
By now, most of you have probably heard that on May 18, 2016, the Obama Administration and the DOL announced the long-awaited final rule updating the Department’s white collar exemption from the FLSA’s minimum wage and overtime protections. The new rule will be effective December 1, 2016. Now that we finally know what we’re dealing with, I thought it may be helpful to pull together some of the key information published by the DOT on this topic to help you assimilate the information and adjust your implementation plans in light of the changes in the final versus proposed rules.
If you’re trying to remember what the white collar overtime rule is, recall that
This Final Rule updates the regulations for determining whether white collar salaried employees are exempt from the Fair Labor Standards Act’s minimum wage and overtime pay protections. They are exempt if they are employed in a bona fide executive, administrative, or professional capacity, as those terms are defined in the Department of Labor’s regulations at 29 CFR part 541. This exemption from the FLSA is sometimes referred to as the “white collar” or “EAP” exemption.
To qualify for exemption, a white collar employee generally must:
- 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 a specified weekly salary level, which is $913 per week (the equivalent of $47,476 annually for a full-year worker) under this Final Rule (the “salary level test”); and
- primarily perform executive, administrative, or professional duties, as defined in the Department’s regulations (the “duties test”).
Certain employees are not subject to either the salary basis or salary level tests (for example, doctors, teachers, and lawyers). The Department’s regulations also provide an exemption for certain highly compensated employees (“HCE”) who earn above a higher total annual compensation level ($134,004 under this Final Rule) and satisfy a minimal duties test.
The DOT states that final overtime rule will:
- Raise the salary threshold indicating eligibility from $455/week to $913 ($47,476 per year), ensuring protections to 4.2 million workers.
- Automatically update the salary threshold every three years, based on wage growth over time, increasing predictability.
- Strengthen overtime protections for salaried workers already entitled to overtime.
- Provide greater clarity for workers and employers.
The final rule will become effective on December 1, 2016, giving employers more than six months to prepare. The final rule does not make any changes to the duties test for executive, administrative and professional employees.
To see the DOL’s video explainer, OVERTIME: It’s about time, click the following link:
According to the DOL, at the revised annual threshold of $47,476, the new rule expected to extend overtime protections to 4.2 million workers. The following map provides a state-by-state look at affected workers. The three states with the most impacted workers are California, Texas, and Florida.
The DOL’s Questions & Answers spell out the ways in which the final rule differs from its proposed rule:
Q. How does the final rule differ from the NPRM?
After considering the public comments, the Department made several key changes to the proposed rule.
- First, the Final Rule sets the standard salary level equal to the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, rather than based on national data as proposed. The Department modified the standard salary level in response to commenters’ concerns that the proposed rule did not adequately account for the lower salaries paid in certain regions.
- Second, the Final Rule provides for automatic updates of the salary levels every three years rather than for annual updates as proposed. The Department made this change in response to commenters’ concerns about the burdens associated with updating the salary level on an annual basis.
- Third, the Final Rule permits employers to count nondiscretionary bonuses, incentives, and commissions toward up to 10 percent of the required salary level for the standard exemption, so long as employers pay those amounts on a quarterly or more frequent basis. In the proposal, the Department said it was considering permitting nondiscretionary bonuses, incentives, and commissions to count toward 10 percent of the salary level, but only if employers paid them on a monthly or more frequent basis. The Final Rule also allows employers to make a “catch-up” payment at the end of each quarter.
The Q&As also provide a helpful breakdown of the differences between the current regulations and the proposed and final rule:
Q. How do the current regulations, proposed rule and final rule compare?
|Current regulations (2004 until effective date of Final Rule, 2016)||NPRM||Final Rule|
|Salary Level||$455 weekly||$970 weekly (if finalized as proposed)
40th percentile of full-time salaried workers nationally.
40th percentile of full-time salaried workers in the lowest-wage Census region (currently the South)
|HCE Total Annual Compensation Level||$100,000 annually||$122,148
90th percentile of full-time salaried workers nationally
90th percentile of full-time salaried workers nationally
|Automatic Adjusting||None||Annually, with requests for comment on a CPI or percentile basis||Every 3 years, maintaining the standard salary level at the 40th percentile of full-time salaried workers in the lowest-wage Census region, and the HCE total annual compensation level at the 90th percentile of full-time salaried workers nationally.|
|Bonuses||No provision to count nondiscretionary bonuses and commissions toward the standard salary level||Request for comment on counting nondiscretionary bonuses and commissions toward standard salary level||Up to 10% of standard salary level can come from non-discretionary bonuses, incentive payments, and commissions, paid at least quarterly.|
|Standard Duties Test||See WHD Fact Sheet #17A for a description of EAP duties.||No specific changes proposed to the standard duties test. Request for comment on whether the duties tests are working as intended.||No changes to the standard duties test.|
https://www.dol.gov/WHD/overtime/final2016/faq.htm#8 (adding annualized salary thresholds).