Sweeping changes to overtime rules are finally here

The U.S. Department of Labor ("DOL") has published the final rule updating the Fair Labor Standards Act ("FLSA") overtime regulations. The final rule provides for significant changes that will have a major impact on overtime entitlement to millions of workers nationwide who would not otherwise qualify for overtime under the existing "white-collar" exemptions for executive, administrative and professional employees and certain highly compensated employees.

The most significant changes include an increase in the salary and compensation levels required for Executive, Administrative and Professional workers to be exempt from overtime requirements. The final rule:

• 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);
• 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; and
• amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.

***The changes to the overtime rules will take effect on December 1, 2016. It is critical that employers evaluate current exempt positions to determine whether requirements will be met to satisfy the exemption. Planning is also extremely necessary to determine whether currently exempt employees will become non-exempt when these changes take effect later this year. Employers who cannot afford to meet the salary requirement of $47,476 for currently exempt Executive, Administrative and Professional employees will actively need to plan to transition those employees to hourly, non-exempt workers.

For more information on these significant changes, please visit: https://www.dol.gov/whd/overtime/final2016/. Should you have any additional questions, please feel free to contact me.

Diana M. Valdez
Attorney at Law