The new overtime rules are happening. The Final Rule is out and becomes effective December 1, 2016. There is plenty of evidence that the Department of Labor (DOL) listened to its more than 300,000 comments on the proposed legislation. The Department is required to provide employers with at least 60 days to comply. It provided six months and the clock is ticking.
The new minimum salary is $913 a week, $47,476 annually. It is still more than twice the current minimum salary which was set in 2004, yet less than the proposed rule. The DOL established a 40th percentile of weekly earnings of full-time salaried workers as the threshold. Criticism about this formula not taking various regions into consideration may have resulted in the Department applying its formula to the lowest wage Census Region.
The duties test did not change. That is a relief, as many anticipated the DOL adopting more strict and time consuming analysis of positions. The duties test was last changed in 2004.
The minimum rate for highly compensated employees is higher than the proposal. Currently, those considered highly compensated are paid $100,000 annually; the proposed rate was $122,000. This rate went up to $134,004 after current Bureau of Labor Statistics data was used. The DOL used the 90th percentile of earnings for full-time salaried workers nationally to be considered exempt as a highly compensated employee (HCE). The HCE must also receive at least $913 per week on a salary or fee basis.
The Department also listened to requests to include nondiscretionary bonuses, commissions and other incentives in the compensation formula. These payments will be included in the salary threshold for the first time. Up to 10% of the salary may be included as long as employees are paid on at least a quarterly basis. The downside is employers are required to pay the withheld 10% whether or not the employee meets their goals and even if the employee leaves the company within the quarter.
Another first is “indexing.” Every three years, the salary threshold will adjust based on the established formulas. The first adjustment will occur on January 1, 2020.
Another indication of the DOL listening to its constituents’ comments is the number of fact sheets and technical guidance documents issued for private employers, non-profit employers and institutions of higher education.
This rule is expected to extend overtime protections to more than 4-million workers.