1. FLSA Overtime Regulation
2016

2. Background
In March 2014, President Obama directed the Department of Labor (DOL) to update the Fair Labor Standard Act of 1938 (FLSA) overtime protections
Goals:
Raise middle-class wages
Increase the number of nonexempt workers
Provide bargaining power to low-wage workers who do not have certain protections
Simplify the identification of overtime-eligible employees

3. Final Overtime Rule – Effective December 1, 2016
Salary Threshold
Standard salary level threshold placed at $47,476 per year ($913 per week) = 40th percentile of weekly earnings for full-time salaried workers in the lowest-wage Census region, currently the South
New Highly Compensated Employees (HCE) salary threshold is $134,004 annually = to the 90th percentile of full-time salaried workers nationally
Employers can apply nondiscretionary bonuses and incentive payments (commissions) up to 10% of the new salary level: $4,747
Payments must be made at least quarterly
Incentive plans with annual payouts will not qualify
The current “exempt for overtime” salary threshold is $23,660

4. Final Overtime Rule – Automatic Updates
Beginning on January 1, 2020, the salary level required for exemption will be automatically updated every three years
Standard salary threshold is tied to the 40th percentile of full-time salaried workers in the lowest-wage region, currently the south
A 7.7% increase over three years: 2020 estimated level of $51,168, similar increase for 2023 would reach $55,108, and a similar increase for 2026 would reach $59,351

5. Final Overtime Rule Summary
Current Regulation
Final Rule
Salary Level
$455 weekly, $23,660 annual
40th percentile of full-time salaried workers nationally
$913 weekly, $47,476 annual
40th percentile of full-time salaried workers in the lowest-wage Census region (currently the South)
HCE Total Annual Compensation Level
$100,000 annually
90th percentile of full-time salaried workers nationally
$134,004
Automatic Adjusting
None
Every 3 years
Bonuses
No provision to count nondiscretionary bonuses and commissions toward the standard salary level
Up to 10% of standard salary level can come from non-discretionary bonuses, incentive payments, and commissions, paid at least quarterly
Standard Duties Test
See WHD Fact Sheet #17A for description of EAP duties
No changes to the standard duties test

6. Exemption Requirements
To be exempt an employee must be
Paid at least $47,476 per year ($455 per week), and
Be paid on a salary basis, and also
Perform exempt job duties: Executive Exception, Administrative Exemptions, Professional Exemptions, Computer Employee Exemption, or Outside Sales Exemption

7. Decision Points
Increase salaries to $47,476 and continue to treat employees as exempt
Reclassify employees to non-exempt status using a variety of pay options
Restructure jobs, workforce, or operations
Pay current salaries, with overtime after 40 hours

8. Risks
Even for members of industries that already pay most exempt employees more than the new threshold, risks will arise from:
Press coverage inspiring employees and lawyers to seek avenues to recover damages
More lawyers who become aware of and educated about how to file FLSA claims
Marketplace chatter that leads to “me-too” concerns among a wide variety of employees
and-hour/exemptions/store-managers-are-always-exempt-arent- they/

9. Risks Exempt employees who pay is not raised who think it should be
Exempt employees whose pay is raised, but who think they should be reclassified as non-exempt/ overtime- eligible
Reclassified employees who question why they weren’t classified as nonexempt, and paid overtime, all along
Reclassified employees who think they were wrongly “demoted”

10. Solutions Draft collaborative teams
Determine appropriate data and strategy
Develop a communication plan
Design and deploy training that imprints