What’s New in the Final Overtime Rules?

What’s New in the Final Overtime Rules?

The Department of Labor’s (DOL) proposal to change the rules on who is eligible for overtime pay has been finalized and published in the Federal Register.  During the development of these new regulations, TECHPol has been keeping you up to date (see blog post: Five Things to Know About New Overtime Rules). The new rules represent significant change, and after receiving feedback from stakeholders on its earlier proposal, the DOL made a few changes in the final rule.

Three Changes in the Final Rule

1.  The salary test that determines if a “white collar” worker (one with executive, administrative, or professional (EAP) duties) is paid enough to be exempt from the overtime pay requirements is lower than originally proposed.  There were a number of concerns about DOL’s plan to increase the salary threshold from the current $23,660 to $50,440 annually; one being that the proposed salary level calculation did not account for regional differences in pay.  So, instead of pegging the salary requirement to the earnings of salaried workers nationally, the final rule looks at workers in the lowest-wage Census Region (currently the South) to derive the salary limit.  Under the final rule, exempt EAP workers need to make at least $913 a week or $47,476 annually, which is the 40th percentile of the weekly earnings of full-time salaried workers in the lowest-wage Census Region.

2.  The final rule also allows the salary test to be met by including bonuses, incentive payments and commissions.  These payments can represent only 10% of the salary level and need to be provided with some frequency — at least quarterly.

3.  In order to keep the salary test up to date, the DOL proposed automatically updating it annually. Some concerned stakeholders pointed to the financial and administrative burden that a yearly change would create.  The final rule still includes an automatic update, but it will occur every three years, starting on January 1, 2020.  The updates will be based on a fixed percentile of earnings of full-time salaried workers (as noted above). For EAP workers, it is expected to increase to about $984 a week or $51,168 annually in 2020.

When Do the Changes Take Effect?

The final rule will be effective on December 1, 2016, giving employers six months to assess their workforce, make the appropriate changes, and become compliant.  The term “final overtime rule” may conjure images of a game that is done and decided.  But, in fact, there are still some efforts alive to change the outcome. Legislation has been introduced in both the House and Senate that would send DOL back to the drawing board.  Under the Protecting Workplace Advancement and Opportunity Act, the overtime rule would be nullified and the DOL would need to meet certain criteria if it decides to issue a similar rule.  (For more details, see blog post: Overtime Regulations: One Step Closer to Change).  In the Senate, the Chairman of the Committee on Health, Education, Labor and Pensions is planning to introduce a resolution that would block the rule under the Congressional Review Act. However, unless the Congress can come up with veto-proof majorities, it is unlikely that they can get a bill signed into law during President Obama’s term (since he issued the executive order calling  for the new rules).   A new Congress and new President will be sworn into office in January, and whether either will be inclined to roll back the new overtime regulation remains to be seen.

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