The Department of Labor recently unveiled its final overtime rule, and businesses may be somewhat relieved that it isn’t quite as strict as most had feared after reading the initial proposed rule.
Specifically, under the new rules:
- The salary threshold has been lowered. The proposed rule said the annual salary an employee had to be paid to be considered exempt under the FLSA would be $970 per week or $50,440 per year, but that has now been lowered to $913 per week or $47,476 per year. As was previously the case, outside sales employees are still exempt from the salary requirements.
- The threshold will not increase annually. The DOL had initially proposed tying the threshold to an automatic escalator, which likely would’ve resulted in annual increases, but the final rule says the threshold will increase every three years. As for how the threshold will be recalculated every three years, HR Morning reports that the threshold will be reset to the 40th percentile of earnings in the lowest wage census region.
- Nondiscretionary bonuses count toward the threshold. In the past, for most employees, nondiscretionary bonuses haven’t counted toward an individual’s salary and therefore did not impact the exemption threshold. However, the final rule amends the salary basis test to allow employers to use nondiscretionary bonuses, incentive payments and commissions to satisfy up to 10 percent of the new $47,476 salary level.
- The duties tests will not change. Early indicators suggested that the DOL would look to adopt a California-style rule in which employees would be required to spend more than half of their time performing exempt duties to be classified as exempt. However, the DOL decided to leave the duties tests as is.
- The highly compensated employee threshold will climb. The total annual compensation requirement needed to exempt highly compensated employees subject to a minimal duties test will climb to $134,004 from $100,000, which is substantially higher than the proposed threshold of $122,148. This threshold will also increase every three years.
- Employers will receive notice of threshold increases. The DOL will give employers at least 150 days’ notice prior to increasing the salary thresholds for both standard employees, as well as highly compensated employees.
- Employers get more time to comply. Hints suggested that employers would have just 60 days to comply from the time the final rule was published, but the final rule states that the deadline is December 1, 2016, giving companies almost six months to get their payroll process in order.
- Nonprofits and small businesses must comply. The regulations do not make exceptions for not-for-profit organizations or small businesses. Instead, these rules apply to all businesses.
To read the full rule, please click here.