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DOL Announces Final Rule Updating Overtime Exemptions

May 19, 2016


At long last the DOL has announced publication of the Final Rule that will update the overtime exemption regulations. The Final Rule will become effective on December 1, 2016. The Final Rule is different in some aspects from the proposed rule, including a slightly lower than expected salary requirement, and the ability for employers to satisfy 10 percent of the new salary level using non-discretionary bonuses and incentive payments, including commissions. The main provisions of the Final Rule include:

  1. For an employee to be exempt from overtime regulations, the employee must earn a salary level of $913.00 per week or $47,476 annually for a full-time employee.
  2. For an employee to be exempt from overtime regulations under the highly compensated employee exemption, the employee must earn a salary level of $134,004, subject to a minimal duties test. (The highly compensated employee exemption is not available to Washington or Oregon employers.)
  3. The salary and compensation levels will be automatically adjusted every three years to be consistent with the 40th percentile of weekly earnings for full-time, salaried workers in the nation's lowest income region.
  4. The salary basis test now allows employers to use non-discretionary bonuses and incentive payments (including commissions) that are paid on at least a quarterly basis to satisfy up to 10 percent of the new $47,476 annual salary threshold. These bonuses include non-discretionary incentive bonuses tied to productivity or profitability. Employers may make a "catch-up" payment at the end of the quarter if the employee does not earn enough in non-discretionary bonuses and incentive payments that quarter to retain his or her exempt status. The employer has one pay period to make up for the shortfall (up to 10 percent of the standard salary level for the preceding 13 week period).

As previously expected, the Final Rule will apply to non-profit and higher education employers.

Employers have until December 1, 2016 to implement the Final Rule. Employers that have not already done so should perform an audit of their workforce to decide the best ways to implement the rule. Employers who pay non-discretionary bonuses and commissions may apply $4,747.60 of those amounts per year towards reaching the salary of $47,476; however, employers should be aware that using non-discretionary bonuses and incentive payments, unless handled correctly, will be a new source of potential wage claims. Choices for implementation of the new rule include:

  • Increasing the pay for salaried employees so that it meets the new levels, including the amounts for non-discretionary bonuses and commissions;
  • Converting employees previously classified as exempt to non-exempt and paying overtime for those who work over 40 hours in a week.

While the Final Rule did not change or add to the duties tests applicable to the "white collar exemptions" for executive, administrative, professional, outside sales and computer employees, now is the perfect time for companies to audit their worker classifications to ensure they comply with those tests and, if necessary, reclassify workers as no longer exempt.

Should you have questions or require assistance in working through these options, the Schwabe Employment attorneys are ready to assist.


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