DOL Releases Overtime Final Rule

The Department of Labor (DOL) has released the Overtime final rule, with an effective date of December 1, 2016. The Final Rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt from the Fair Labor Standards Act (FLSA).

The Final Rule:

• Sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South ($913 per week; $47,476 annually for a full-year worker);
• Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004); and
• Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.

Additionally, the Final Rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level. Such bonuses also affect the base salary from which overtime pay percentages are calculated for the following month. The rule makes no changes to the duties tests associated with the relevant exemptions.

Along with the rule, DOL announced a non-enforcement policy for providers of Medicaid-funded services for individuals with intellectual or developmental disabilities in residential homes and facilities with 15 or fewer beds. This policy applies enterprise-wide—this means that a single provider operating multiple sites can expect the policy to apply to any site with 15 or fewer beds. From December 1, 2016 to March 17, 2019, DOL will not enforce the updated salary threshold of $913 per week for the subset of employers covered by this non-enforcement policy. Throughout the duration of this non-enforcement policy, DOL says it “will engage in outreach and technical assistance efforts, including to providers of services in settings covered by this policy.” It is important to note that the non-enforcement policy does not inhibit the right of private action, and also that DOL will continue to enforce all other applicable FLSA standards with regard to these employers, including the salary and compensation levels previously required for Executive, Administrative and Professional workers to be exempt from the FLSA.

In a fact sheet for non-profits, DOL lays out the following options for complying with the new rule:

• Raise salaries: For workers whose salaries are close to the new threshold and who meet the duties test, employers may choose to raise these workers’ salaries to meet the new threshold and maintain their exempt status.
• Pay overtime above a salary: Employers also can continue to pay newly overtime-eligible employees a salary and pay overtime for hours in excess of 40 per week. The law does not require that newly overtime eligible workers be converted to hourly pay status. This approach works for employees who usually work 40 hours or fewer, but have seasonal or occasional spikes that require overtime for which employers can plan and budget the extra pay during those periods.
• Evaluate and realign employee workload: Employers can limit the need for employees to work overtime by ensuring that workloads are distributed to minimize overtime and that staffing levels are appropriate for the workload.
• Adjust employees’ base pay and pay overtime: Employers can adjust the amount of an employee’s earnings to reallocate it between regular rate of pay and overtime compensation. This method works for employees who work a relatively small amount of predictable overtime. The revised pay may be on a salaried or hourly basis (there is no requirement to convert workers to hourly pay status), but it must include payment of overtime when the employee works more than 40 hours in a week.

A fact sheet for state and local governments includes a very similar list, and adds:

• Utilize comp time: State and local government employers—unlike private sector employers—can provide comp time rather than cash overtime payments in appropriate circumstances.

FMI: The rule itself can be read at https://s3.amazonaws.com/public-inspection.federalregister.gov/2016-11753.pdf. DOL has a web portal for the rule and various related factsheets at https://www.dol.gov/whd/overtime/final2016/. Of particular interest may be the Final rule Fact Sheet (https://www.dol.gov/whd/overtime/final2016/overtime-factsheet.htm), the Fact Sheet for the non-profit sector (https://www.dol.gov/sites/default/files/overtime-nonprofit.pdf), the Fact Sheet for state and local governments (https://www.dol.gov/sites/default/files/overtime-government.pdf), and the statement regarding the non-enforcement policy (https://www.dol.gov/whd/overtime/final2016/nonenforcementpolicy.htm), which includes links to the Federal Register notice and a “Questions and Answers” document.