The long awaited final rule updating the regulations relating to overtime exemptions for executive, administrative and professional employees was published earlier this week on May 17, 2016. Contrary to all the hoopla that was written about this anticipated final rule, the Obama administration did not wait until Labor Day or the Fourth of July to publish it. The fact sheet published by the Wage and Hour Division of the United States Department of Labor can be found at https://www.dol.gov/whd/overtime/final2016/overtime-factsheet.htm. The effective date of the final rule is December 1, 2016.
The key provisions of the final rule are as follows:
- The salary threshold for employees who are exempt – and therefore not eligible for overtime – will jump from $23,660 to $47,476 annually for a full year worker. In other words if you are an exempt employee under the executive, administrative or professional category and earn less than $47,476, after December 1, 2016 you will become nonexempt and eligible for overtime pay;
- The total annual compensation for highly compensated employees who are subject to a lesser “duties” test will increase from $100,000 to $134,004;
- The salary and compensation levels will be reevaluated every three years under a mechanism that will modify these new levels in accord with the percentile of earnings at which they have been established (the 40th percentile of earnings for fulltime salary workers for the $47,476 salary level and the 90th percentile for fulltime salary workers for the $134,004 highly compensated employee level).
It is estimated that some 4.2 million more employees in the United States will be eligible to earn overtime pay when the new final rule takes effect on December 1. Employers who are concerned about the impact of this final rule on their bottom line may choose to react in multiple ways. Now is not only a good time for employers to receive counsel about the best strategy to respond to and comply with the final rule, but also to address any issues employers might have about compliance with the complex wage and hour laws.
While employers are in this “overtime period” prior to the effective date of the final rule, employers should audit their exempt employees to determine how many will be subject to the final rule. In the recent months there have been numerous publications and commentaries about the likely impact of the final rule and suggested strategies for communicating the changes to your employees and implementing it. The employment law attorneys at Sands Anderson are available to counsel on this subject and to help employers remain compliant with this final rule and the wage and hour laws.