The New Overtime Rule

The Department of Labor recently published a new overtime rule that is intended to extend overtime pay protection to more workers who are currently exempt – approximately 4.2 million across the country, and 331,000 workers in the state of Florida.  The new rule focuses on administrative, executive, and professional ("AEP") employees, who may normally be exempt from minimum wage and overtime pay protections under the Fair Labor Standards Act (“FLSA”).

The final rule, which will become effective on December 1, 2016, aims to accomplish this by updating the salary requirements that must be met for employees to fall within the AEP exemption.

Specifically, the Final Rule:

1.      Raises the salary level (used in the 3-part test) for the exemption from $23,660 (or $455 per week) to $47,476 (or $913 per week) annually for an AEP full –year worker;

2.      Sets the total 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 salaried workers nationally, which is $134,004; 

3.      Automatically updates the salary levels every three years to maintain the levels at the above percentiles;

4.      Amends the salary basis test to allow employees to use non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level; and

5.      Does not change the duties test (used in the 3-part test).

This means that more AEP employees, previously exempt from FLSA overtime protections, will now be eligible to receive overtime pay at a minimum rate of time and one-half their regular pay rate, for any hours worked in excess of forty (40) hours in a work week.

For FLSA’s AEP exemption to apply the standard 3-part test (salary basis, salary level, and duties test) will still need to be met, even with the new overtime rule.

3-PART TEST

  •  Salary Basis Test – employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed.
  • Salary Level Test – amount of salary paid must meet a minimum specific amount (now $47,476 under the new rule), and
  • Duties Test – employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations. 

Per the Department of Labor, the motivating policy behind the issuance of this final rule was to either put more money in the pockets of middle class workers, or give them more free time. Undeniably there have been mixed reactions from business owners, with some welcoming the new rule, while others are opposed.  Depending upon circumstances, the Department of Labor is suggesting that different businesses may respond to the rule in the following ways:

An employer must stay abreast of its rights and responsibilities under the new rule, and all FLSA regulations.  The final rule will go into effect on December 1, 2016, which will give employers the remainder of the year to prepare.  There are many resources available to businesses.  The Department of Labor has a collection of online e-tools to assist businesses and employees in understanding what is required.  It may also be useful to consult an attorney if you are unsure about FLSA overtime obligations for your business.