DOL Releases Final Rule Amending Overtime Regulations

May 2016

The Department of Labor has released its highly anticipated final rule on overtime regulations under the Fair Labor Standards Act’s (“FLSA”) white collar exemptions. The new regulation will take effect December 1, 2016, giving employers approximately 200 days to prepare for compliance with the new regulations.

Key Provisions of the New Rule:

  • The Minimum Salary Threshold is More than Doubled. Under the new rule, the minimum salary threshold for exempt status is increased from $455 a week to $913 a week ($47,476 per year).
  • Increase to the Salary Threshold for the “Highly Compensated” Exemption. The minimum salary threshold for the “highly compensated” exemption is increased from $100,000 to $134,004 per year.
  • Nondiscretionary Bonuses and Other Incentive Payments can Meet Up to % 10 of the Salary Threshold. Employers can count nondiscretionary bonuses and other incentive payments, including commissions, paid on at least a quarterly basis, for up to 10% of the salary threshold. If an employee does not earn enough of a nondiscretionary bonus or incentive payment in a given quarter to meet the threshold salary level, an employer may make a “catch-up” payment no later than the next pay period after the end of the quarter. Any such “catch-up” payment counts only toward the prior quarter’s salary.

The new rule also provides for automatic increases in the salary levels every three years (beginning January 1, 2020).

Importantly, the new rule does not make any changes to the “duties test” for executive, administrative, or professional employees that determines whether an employee who is earning more than the salary threshold is eligible for overtime.

What This Means To You

The new rule will have a significant impact, especially with respect to entry level managerial and professional positions. Employers should take the following steps to ensure they are in compliance with the new rule by December 1, 2016:

  • Conduct an internal audit of exempt employees to determine whether employees who are currently classified as “exempt” will still qualify for the exemption under the new rule.
  • Consider options for compliance with the new rule, including reclassification of formerly “exempt” employees as “non-exempt” or salary increases to bring exempt employees above the new threshold.
  • Consult with legal, accounting and payroll professionals to ensure compliance with the new rule and to develop a plan for implementing changes and communicating with impacted employees.
  • Review and update existing employment policies and procedures to make sure they accurately reflect changes to employee classification.

Special thanks to Daniella M. Muller, Senior Attorney in the Employment Practices Group, for her assistance preparing this alert.

For more information on this issue or other employment matters, please contact:

Mara B. Levin at [email protected] or +1 212 592 1458
Carol M. Goodman at [email protected] or +1 212 592 1465
Jonathan Adler at [email protected] or +1 212 592 5936

© 2016 Herrick, Feinstein LLP. This alert is published by Herrick, Feinstein LLP for informational purposes only. Nothing contained herein is intended to serve as legal advice or counsel or as an opinion of the firm.