New Overtime Rule Increases Minimum Salary Level by Over 100 Percent

New Overtime Rule Increases Minimum Salary Level by Over 100 Percent
May 18, 2016

Summary

On May 18, 2016, the Department of Labor (DOL) unveiled its long-awaited overtime regulations.  In its first increase since 2004, the minimum salary level for exemption from overtime has been increased by just over 100 percent, from $455 per week ($23,660 annually) to $913 per week ($47,436 annually).  The salary level for Highly Compensated Employees (HCEs) has also been increased, from $100,000 to $134,004 annually.

The new “standard” salary level is indexed to the 40th percentile of weekly earnings for full-time salaried workers in the lowest wage Census Region in the United States, that is, the South Census Region.  The new HCE total annual compensation level is indexed to the 90th percentile of earnings of full-time salaried workers nationwide.  These levels will be updated every three years, with the first update taking effect on January 1, 2020.

The regulations also amend the salary basis test, permitting employers to count nondiscretionary bonuses and incentive payments, including commissions, towards up to 10 percent of the new salary level; however, this does not apply to HCEs.

These changes will have the greatest impact on industries with substantial numbers of low-paid managers (eg., retail, production, service), but most employers and virtually all industries will be affected.  The new rule is effective December 1, 2016, giving employers several months to prepare.  

Although the new regulations do not modify the standard duties tests for the white collar exemptions, potential future revisions could impact employees who meet the salary level tests but who do not otherwise meet the standard duties tests, making them eligible for minimum wage and overtime protections after all.  

Watch for our supplemental Alert for more comprehensive information on the new regulations and what employers should be doing now to ensure compliance by December 1, 2016 in a manner that is most effective for their organizations.  For more information on what the regulations mean for your business, please contact the author or the attorney at the firm with whom you are regularly in contact.

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