On May 18, 2016, the federal Department of Labor (DOL) announced the publication of its new final rule regarding overtime exemptions. Some estimates indicate that the new rule will extend overtime pay protections to as many as 4 million U.S. workers during the rule’s first year.

Many may recall that two years ago, President Obama penned a memorandum that directed the DOL to update its regulations so as to define more clearly which white collar workers were protected by the terms of the Fair Labor Standards Act (FLSA), which sets the federal minimum wage and defines overtime payment standards.

Some within and without the federal government had become concerned that a growing number of employees were working more hours and yet were not being compensated for them. Others pointed out that the initial white-collar exemption level was set in 1975 and had not been changed since. In response to these and other pressures, 11 months ago, the DOL published proposed rules and invited responses from interested parties. According to government data, the DOL received more than 270,000 comments. The DOL advises that some of those comments were reflected in the final rule.

Key Provisions

The primary effect of the new Final Rule is to update the salary and compensation levels required for executive, administrative, and professional workers to be exempt from being paid overtime. As such, 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 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.

The Final Rule throws a bone at employers; allowing them to use non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.

Women and Minorities May See Additional Overtime Benefits

Some employment experts say the DOL’s Final Rule could significantly benefit women and minorities in the workplace. They contend that the “gender gap” now places many women in middle management firmly within the salary range that would now be covered by the salary exemption increase. In other words, since female managers on average earned $981 per week in 2014, according to DOL data. Their male counterparts earned $1,346 weekly. Many of those men would be exempt from overtime pay, whereas the women would not be.

Rules Affect Both Small and Large Businesses

The DOL’s new rules are pervasive in their affect on businesses, both large and small. Many businesses have found the rules confusing. They worry whether their human resources practices are in sync with the new requirements. For years now, CKB VENNA LLP has represented businesses in all types of legal issues, from litigation to employment-related matters. Our team understands the complexity of the issues and stands ready to represent you aggressively. We have offices in Rancho Cucamonga, San Bernardino, and Los Angeles. Contact us by telephone at 909-980-1040, or complete our online form.