What Will New Federal Overtime Rules Mean for Your Business?


NEW YORK—The U.S. Department of Labor (DOL) recently announced the highly anticipated federal overtime rule under the Fair Labor Standards Act (FLSA). When the final rule becomes effective on Dec. 1, 2016, an estimated 4.2 million white collar workers will become entitled to overtime pay when they work extra hours and wages for workers will increase by $12 billion over the next 10 years, according to the White House.

The final rule changes the salary level that must be met before an employee can be exempt from overtime. The minimum salary threshold will increase to $913 per week, or $47,476 annually, and will apply to nearly all employees—an employee paid less than this threshold amount will be guaranteed overtime pay. The new federal salary threshold of $47,476 is more than double the current federal threshold of $23,660.

Under the final rule, employees in different states potentially will be classified as non-exempt under the FLSA and entitled to overtime because they don’t meet the federal minimum salary threshold. A chart provided by the White House shows that California, for example, has the most workers potentially affected of any state—more than 392,000 affected workers. California’s share of the total number of workers affected nationwide is almost 10 percent. The next closest states are Texas and Florida.

Other key points from the final rule include:

• The minimum salary threshold will now be automatically updated every three years, with the first automatic update occurring Jan. 1, 2020. Based on projections of wage growth, the White House stated that the salary threshold is expected to rise to more than $51,000 with the first update.

• The final rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments to satisfy up to 10 percent of the new salary threshold.

• The rule sets the total annual compensation requirement for highly compensated employees (HCE) at $134,004—up from $100,000; HCEs are exempt almost solely on their salary and are subject to a minimal duties test.

• The DOL left the federal duties test alone. An employee must meet both the salary threshold and a “duties” test to be exempt from overtime.

The announcement comes nearly two years after President Obama first directed the Secretary of Labor to begin creating new overtime rules. The DOL received nearly 300,000 comments on the contentious proposal.

Employers will want to prepare for the Dec. 1, 2016 deadline. Although there will likely be challenges to the new rules, it is unknown if any such challenges will succeed. Employers do not want to get caught out of compliance.

More information, including facts sheets, questions and answers, and information for small businesses can be found on the DOL final overtime rule website. The Vision Council's Business Affairs Counsel has drafted a memo detailing what you need to know to comply with the new rules for your business.

Stay tuned to VisionMonday.com for more information as this new rule draws closer to the effective date.

Hedley Lawson, Contributing Editor
Managing Partner
Aligned Growth Partners, LLC
(707) 217-0979