On May 18, 2016, the Department of Labor (“DOL”) and the White House announced the publication of the DOL’s final rule revising the white collar overtime exemption regulations. The Final Rule is expected to extend overtime protections to approximately 4.2 million Americans nationwide, including approximately 84,000 employees in Massachusetts, and is expected to boost wages for workers by $12 Billion over the next 10 years.
While the Final Rule is hundreds of pages long, key provisions of the Final Rule are as follows:
- Doubles the Salary Threshold, by setting the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region (thereby increasing the threshold from $23,660 to $47,476 a year, or from $455 to $913 a week);
- Increases the Highly Compensated Employee (HCE) Threshold, by setting the total annual compensation requirement for highly compensated employees subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally (thereby increasing the threshold from $100,000 to $134,004 a year);
- Automatically Increases the Salary and Compensation Levels, by establishing a mechanism for automatically updating the levels every three years, starting on January 1, 2020; and
- Amends the Salary Basis Test, to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary threshold, provided such payments are made at least quarterly.
The effective date of the Final Rule is December 1, 2016, and the initial increases to the standard salary level and HCE total compensation requirement will be effective on that date.
It is important for employers to now identify exempt positions where employees earn less than the salary threshold and then either (a) increase the salaries for those positions to at least the new threshold to keep positions exempt from overtime pay; or (b) reclassify the employees in those positions from exempt to nonexempt and either pay overtime for hours worked in excess of 40 per week or ensure such employees do not work more than 40 hours in a workweek. Employers choosing the second option also must be mindful of whether benefits will change for workers reclassified to nonexempt. In addition, employers who reclassify employees to non-exempt status must keep track of all hours worked if they had not been doing so previously.
Stay tuned for more updates from Mirick O’Connell’s Labor and Employment Group and reach out to one of our attorneys if you have any questions about what your Company must do to comply with the Final Rule.