New Overtime Regulation Effective December 1, 2016

This morning, the U.S. Department of Labor released the greatly anticipated new overtime regulation which becomes effective on December 1, 2016.  The new regulation deals primarily with the “white collar exemption” from the Fair Labor Standards Act’s overtime requirements.  Currently, the “white collar exemption” applies to executive, administrative, professional, outside sales, and computer employees, such that these employees are not entitled to overtime pay for hours worked in excess of 40 hours per week, provided that the employee is paid on a salary basis and makes at least $455 per week in wages ($23,600 annualized).

In 2014, President Obama directed the Secretary of Labor to update the DOL’s overtime rules and regulations to address, among other things, the salary threshold for exempting employees from overtime pay under the FLSA.  The DOL published notice of its intent to update the overtime rules and regulations and sought public comment regarding the same.  After the required notice and comment period expired, the DOL enacted the newly released regulation, increasing the salary threshold from $455 per week to a whopping $913 per week ($47,476 annualized), more than doubling the current salary threshold for designating employees exempt from overtime under the FLSA.  The new regulation also includes automatic updates to the salary threshold every 3 years, which will be based on wage growth over that period of time, meaning that the salary threshold will continue to climb every three years.

This substantial increase in the salary threshold for exempt employees will result in many employees who have always been considered exempt (and not entitled to overtime pay) having to be re-designated as non-exempt and paid overtime for any hours worked in excess of 40 hours per week.  It will also result in increased recordkeeping obligations for employers, who must now track and record the hours of the formerly exempt, but now non-exempt, employees.  When it announced the new regulation this morning, the DOL provided four (not so helpful) suggestions for employers in dealing with the new regulation: (1) begin paying newly non-exempt employees overtime for hours worked in excess of 40 hours per week, (2) raise newly non-exempt employees’ salaries above the new salary threshold, (3) limit workers’ hours to 40 hours per week or less, or (4) some combination of these things.

The new regulation becomes effective on December 1, 2016, giving employers approximately six months to brace for the impact of the new regulation and plan accordingly.  Employers should start reviewing their wage and hours data now to determine exactly how the new regulation will impact them and consider strategies for dealing with the impact.  Employers will almost certainly see increased DOL targeted investigations into wage and hours issues once the new regulation becomes effective.  Employers must be properly positioned and prepared to address such investigations should the DOL come knocking.

For more information regarding the new overtime regulation you can contact Attorney Theresa A. Phelps.