On May 18, 2016, the United States Department of Labor released final updates to the Fair Labor Standards Act (FLSA), extending overtime eligibility to over 4.2 million workers. The key change is to double the salary threshold – from $23,660 to $47,476 per year ($455 to $913 per week) – under which most salaried employees are now guaranteed overtime pay. Employers should immediately begin preparing to comply with the updates by the effective date of December 1, 2016.
Previously, the FLSA’s salary threshold had been updated only once since the 1970s. The change automatically entitles 35 percent of full-time salaried workers to overtime pay, based solely on salary.
The salary threshold will be automatically updated every three years beginning January 1, 2020, to counteract the prior rule’s effect of covering fewer workers each year as wages increased over time.
The new rule also increases the total annual compensation level above which highly compensated employees (“HCE”) are ineligible for overtime pay, from $100,000 to $134,004 a year. Further, under the new rule, up to 10 percent of the salary threshold for non-HCE employees can be met by non-discretionary bonuses, incentive pay, or commissions, provided payments are made at least quarterly.
The “duties test,” which is used to determine whether white collar salaried workers earning more than the salary threshold are ineligible for overtime pay, remains unchanged. However, fewer employers will need to apply this test due to the higher salary threshold; salary alone will provide a bright line answer as to more employees’ overtime eligibility.
Employers are advised to review their compensation and payroll policies without delay to ensure compliance by December 1, 2016. Please contact us to discuss how the final rule will affect your organization and for compliance assistance.