Alert: Exemptions Rule Finalized; Effective December 1

Today, President Barack Obama and Secretary of Labor Thomas Perez announced the publication of the U.S. Department of Labor’s (DOL) Final Rule modifying the white-collar exemptions and overtime regulations, which the DOL claims will extend overtime pay to more than 4 million workers within the first year of implementation. The Final Rule takes effect December 1, 2016.

The DOL’s proposed rule, which appeared in the Federal Register on July 6, 2015 (80 FR 38515), originally called for the minimum salary for exempt employees to be set at $970 per week or $50,440 annually. However, after considering more than 270,000 written comments, the DOL arrived at a lower minimum threshold.

The Final Rule increases the minimum salary and compensation levels needed for Executive, Administrative, and Professional workers in order to be exempt. Specifically, the Final Rule:

  1. Sets the minimum salary level for exempt employees at $913 per week or $47,476 annually, up from $455 per week or $23,660 annually, a threshold set in 2004. The new figure represents the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South. The Final Rule allows non-discretionary bonuses, incentive payments, and commissions to satisfy up to 10 percent of the new standard salary level, as long as these forms of compensation are paid at least quarterly.
  2. Sets the total annual compensation requirement for highly compensated employees who customarily and regularly spend time on one or more exempt duties (the minimal duties test) at $134,004, the annual equivalent of the 90th percentile of full-time salaried workers nationally (up from $100,000 set in 2004);
  3. Automatically updates these figures every three years to ensure they remain above the relevant percentiles;
  4. Does not change the duties test for exempt employees, a welcome relief for employers.

Although the Office of Management and Budget (OMB) has reviewed and approved the Final Rule, the document has not yet been published in the Federal Register. The OMB-approved version can be accessed here and is set for publication in the Federal Register on May 23, 2016.

The Final Rule represents an unwelcome change for many employers. For strategies for minimizing business impact, access attorney Christina Kelley’s recent Bulletin article here.

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