Monday, June 27, 2016

Get Ready for the New Overtime Rules

Last week, the Labor Department published its final rules updating the overtime regulations which, Labor estimates, will automatically extend overtime pay protections to over 4 million workers within the first year of implementation. Or will it?  If you've been following the news on this topic, you've no doubt heard from many sources that the 4 million estimate is wildly overstated. Who knows? Perhaps we'll know in a year or so just how well the new rules are working.

According to the Labor Department, "this long-awaited update will result in a meaningful boost to many workers' wallets, and will go a long way toward realizing (the President's) commitment to ensuring every worker is compensated fairly for their hard work.

The Labor Department published proposed rules almost a year ago, July 2015, and received more than 270,000 comments in response to the notice of proposed rule-making (NPRM). That number of comments is very significant. Most NPRMs get a few comments, many less than ten. Labor didn't tell us how many of the 270,000 comments supported or disagreed with the proposed regulations. We suspect that there were a lot of comments on both sides - businesses generally against the new rule and labor groups in favor.

Here are the key provisions of the final rule. It focuses primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt from the FLSA (Fair Labor Standards Act)

  • Sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wager Census Region, currently the South ($913 per week; $47,476 annually for a full-year worker)
  • Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004), and
  • Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.

There are, of course, many details that businesses will need to know to effectively implement the new rule. It becomes effective on December 1, 2016. Click here to read more about the new rules.

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