On May 18, 2016 President Obama and Secretary Perez announced the publication of the Department of Labor’s final rule updating the current overtime regulations, which will automatically extend overtime pay protections to approximately 4 million workers. While many employers had awaited this final ruling after President Obama signed a Presidential Memorandum back in 2014 directing the DOL to update the existing regulations, many are still scrambling to make sense of what the final rule means for their employees and their business.
The key provisions of the final rule are as follows:
- Determines the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region at $913 per week or $47,476 annually for an employee who works all year.
- Sets the total annual compensation requirement for highly compensated employees (referred to as HCE) subject to a minimal duties test and to the annual equivalent of the 90th percentile of full time salaried workers nationally at $134,004.
- Establishes a mechanism for automatically updating the salary and compensation levels every 3 years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.
The final rule also amends the salary basis test to allow employers to use discretionary bonuses and incentives to satisfy up to 10 percent of the new standard salary level. These changes take effect on December 1, 2016, leaving many employers to make determinations on how to handle their current staff who may be effected by the changes in standard salary level which previously was set at $23,660 annually.
Employers are building plans to accommodate the potential increases in overtime costs and base salaries, the re-classification of employees, changes in timekeeping, and any additional business ramifications. If you have not addressed these changes for your organization, The Department of Labor offers additional information at www.wagehour.dol.gov or by calling 1-866-4-USWAGE.
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