President Barak Obama and Secretary Thomas Perez announced today, May 18, 2016, the publication of the Department of Labor’s (DOL) final rule on overtime regulations. The much-anticipated revision will go into effect December 1, 2016, and immediately extend protection to more than 4 million workers in its first year.
While the President and advocates of the Final Rule boast the benefits the new overtime regulations will have on the working middle class; little is being said about the devastating impacts this could have on the economy, or employers, by nearly doubling the salary threshold for employees to receive overtime pay. The only acknowledgment of hardship came in April after serious concerns were voiced during the comment period. Employers should review the key provisions and findings below and start actively preparing for December 1.
Key Provisions and Findings of the Final Rule
- The final rule will go into effect on December 1, 2016.
- The new salary threshold for overtime pay will be $913 per week and $47,476 annually.
- The December 1 date provides employers six months to prepare for implementations instead of the original 60-days.
- Automatic updates to overtime thresholds will occur every three years, starting January 1, 2020.
- The first scheduled threshold is projected to rise to more than $51,000 on January 1, 2020.
- The standard salary threshold is determined by the 40th percentile of income of salaried full-time employees in the Census Region with the lowest wages (presently the South)
- A Notice of Proposed Rulemaking (NPRM) was published in the Federal Register and open for comment by the DOL on July 6, 2015.
- By September 4, 2015, more than 270,000 comments were submitted, responding to the NPRM.
- The Final Rule’s focus is mainly on revising the compensation and salary levels needed for professional, administrative, and executive employees to be exempt.
- Highly compensated employees (HCE) will be subject to a minimal duties test to the annual equivalent of the 90th percentile ($134,004) of full-time salaried workers nationally.
- The initial increases to the standard salary threshold for HCE will increase from $100,000 to $134,004 per year.
- The Final Rule allows employers to utilize incentive and nondiscretionary bonuses to fulfill 10% of the updated standard salary threshold.
The publication of this Final Rule will have a significant and disastrous impact on many employers nationwide. Though some workers will benefit from an increase in their salary, employers will be forced to make tough decisions and use less than ideal solutions to comply with the new regulations. Only time will tell how the overtime rule will impact employers and the economy. The best advice for employers is to start preparing now and use the next six months to revise budgets, pay practices, and determine the best strategy to meet the new overtime regulations.
If you have any questions concerning the overtime rule, contact Career Resources, Inc.