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Labor Department Publishes New Overtime Pay Rule

May 19, 2016

WASHINGTON, D.C. — On Wednesday, the U.S. Department of Labor published its final rule updating overtime regulations under the Fair Labor Standards Act (FLSA), which, according to the department, will automatically extend overtime pay protections to more than four million workers within the first year of implementation.

The final rule focuses primarily on updating the salary and compensation levels needed for executive, administrative and professional workers to be exempt. Specifically, the rule does the following:

  1. Sets the standard 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);
  2. Sets the total annual compensation requirement for highly compensated employees subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time workers nationally ($134,004); and
  3. Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain 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% of the new standard salary level.

The effective date of the final rule is Dec. 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 Jan. 1, 2020.

“This long-awaited update will result in a meaningful boost to many workers’ wallets, and will go a long way toward realizing President Obama’s commitment to ensuring every worker is compesnsated fairly for their hard work,” read the Labor Department’s announcement.

In 2014, President Obama signed a Presidential memorandum directing the department to update the regulations defining which white collar workers are protected by the FLSA’s minimum wage and overtime standards. The memorandum instructed the department to look for ways to modernize and simplify the regulations while ensuring that the FLSA’s intended overtime protections are fully implemented.

The department published a Notice of Proposed Rulemaking in the Federal Register on July 6, 2015, and invited interested parties to submit written comments on the proposed rule by Sept. 4, 2015. The more than 270,000 comments received helped shaped the rule published this week, the department said.

The National Automobile Dealers Association filed extensive comments opposing any increased salary thresholds at the Small Business Administration and Department of Labor listening sessions. The association said it is developing outreach materials on the rule’s impact on dealerships and their employees and is evaluating potential participation in potential litigation and Congressional oversight.”

To view the new rule, click here.

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