On May 18, 2016, the U.S. Department of Labor (“DOL”) released its highly anticipated Final Rule Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees (the “Final Rule”). The Final Rule extends overtime pay eligibility to millions of workers by raising the thresholds required to satisfy “white collar exemptions” to the overtime pay protections of the Fair Labor Standards Act (“FLSA”). The Final Rule becomes effective December 1, 2016.

Key Provisions of the Final Rule

• The Standard Salary Threshold will increase to $47,476 per year ($913 per week). The new salary level, below which a worker is automatically entitled to overtime pay for hours worked over 40 per week, is more than double the current level of $23,660 per year ($455 per week). It represents the 40th percentile of full-time salaried workers in the nation’s lowest income Census region (currently the South).
• Up to 10% of the Standard Salary Threshold may be met by nondiscretionary bonuses, incentive payments, and commissions. For the first time, employers will be allowed to satisfy up to 10% of the standard salary level with nondiscretionary bonuses, incentive payments, and commissions, provided that these forms of compensation are paid at least quarterly.
• The Highly Compensated Employee (“HCE”) Threshold will increase to $134,004 per year. The new total annual compensation level for HCEs, above which only a minimal showing is needed to exempt the employee from overtime pay, is a 34% increase over the current level of $100,000. It represents the 90th percentile of full-time salaried workers nationwide.
• Thresholds Will Automatically Adjust Every Three Years. The standard salary and HCE thresholds will automatically adjust every three years, beginning January 1, 2020, to maintain the standard salary level at the 40th percentile of full-time salaried workers in the nation’s lowest income Census region and the HCE total annual compensation level at the 90th percentile of full-time salaried workers nationwide. The DOL will post new thresholds 150 days in advance of their effective date to give employers time to prepare for compliance.
• No Changes to the Duties Tests. The Final Rule makes no changes to the standard duties test or the HCE duties test used to determine whether workers earning more than the relevant threshold are overtime eligible or overtime exempt.

The Final Rule is scheduled to be published in the Federal Register on May 23, 2016. A pre-publication version is available here.

Compliance Options

Employers have the flexibility to choose the method or methods of compliance that best suit their business and workforce. Options for compliance include, but are not limited to, the following:

• Increase the salaries or compensation of currently exempt employees to the relevant new level in order to maintain overtime exemptions.
• Pay workers overtime for hours worked over 40 per week.
• Limit or avoid overtime hours by adjusting schedules and/or workload distribution.

To the extent employers have not already done so, they should evaluate their current workforce and payment structures before developing and implementing a compliance plan. The DOL has released fact sheets and guidance documents designed to help employers comply with the new regulations. These materials are available through the DOL website.

If you have any questions about the issues addressed in this law alert, please contact Christine M. Netski or Andrea Studley Knowles.

This Alert was prepared for the clients and colleagues of Sugarman, Rogers, Barshak & Cohen, P.C. It is provided for educational and informational purposes only and is not a substitute for professional advice on your specific legal situation.

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Andrea Studley Knowles

Managing Partner

617.227.3030 Email Andrea