United States Department of Labor Announces on May 18, 2016 New Overtime Regulations

The Department of Labor has updated regulations governing the exemption of executive administrative and professional ("EAP") employees from the minimum wage and overtime pay protections of the Fair Labor Standards Act ("FLSA"). The Department feels that the final Rules update the salary level required for exemption to ensure that FLSA's intended overtime protections are fully implemented and to simplify the identification of overtime-protected employees, thus making EAP exemption easier for employers and workers to understand and apply.

The key provisions of this Rule focuses primarily on updating salary and compensation levels needed for EAP workers to be exempt. Specifically, the final Rule 1) sets the standard salary at the 40th percentile of earnings of full-time salaried workers in the lowest-wage census region, currently the south, which is $913 per week or $47,476.00 annually for a full-time worker; 2) sets the 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 salary workers nationally, which is $134,004; and 3) 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.

Additionally, the final Rule amends the salary basis test to allow employers to use non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the new standard salary level. The final Rule makes no changes to the duties tests. The effective date of the final Rule is December 1, 2016.

Employers will need to evaluate current employees who are deemed to be exempt employees to make sure that under the new regulations that they remain so, otherwise these employees are subject to the overtime regulations contained in the FLSA. Please contact Rajkowski Hansmeier Ltd. if you have any questions.