On May 23, the U.S. Department of Labor (DOL) published a final rule changing the federal exemptions to overtime pay under the Fair Labor Standards Act for so-called "white collar" workers, which include administrative, executive, professional and computer professional employees, that have long been exempt from being paid time-and-one-half for working more than 40 hours per week. The rule will essentially double the current minimum annual salary level for exemption from $23,660 to $47,476 per year effective Dec. 1, 2016.

Changes under the final rule include:

• Increase in Minimum Standard Salary Level

The final rule increases the minimum salary level to the 40th percentile of weekly earnings for full-time salaried workers in the lowest-wage census region (currently the South), which is $47,476 annually or $913 per week.

• Highly Compensated Employees (HCE)

The final rule sets the total annual compensation for HCE to the 90th percentile of full-time salaried workers nationally to $134,004, from $100,000, and is subject to a minimal duties test.

• Nondiscretionary Bonuses and Incentives

Employers are allowed to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary level. These payments must be made on a quarterly or more frequent basis; however, the rule allows employers to make a “catch-up” payment. HCE must receive at least the full standard salary amount each pay period on a fee basis, without regard to bonuses. However, HCE are allowed to use nondiscretionary bonuses and incentive payments (including commissions) towards the total annual compensation requirement.

• Automatic Indexing

The standard salary level will be automatically updated every three years to maintain a threshold equal to the 40th percentile of weekly earnings of full-time salaried workers in the lowest wage census region. The HCE compensation level also will be automatically updated to maintain the 90th percentile of full-time salaried workers nationally. The updated rates will be published in the Federal Register and on DOL Wage and Hour Division’s website at least 150 days before the effective date. The automatic updates on these thresholds will begin Jan. 1, 2020.

• Standard Duties Test

The rule does not make any changes to the standard duties test.

Additional resources on the final rule can be found on DOL’s website, including archived informational webinars on the final rule. 

ABC and a coalition of business groups filed a legal challenge against the rule in the U.S. District Court for the Eastern District of Texas in September, 2016. ABC will continue to update members on any legal developments through Newsline.