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New DOL Overtime Rule Increases

     A previously issued Client Alert advised that on July 6, 2015, the Department of Labor (DOL) proposed a new rule that would update the FLSA’s overtime exemptions.  That new rule was released on May 18th and will become effective as of December 1, 2016.

    Under the FLSA, employers must pay employees overtime pay at a rate of time-and-a-half, but certain employees are exempt from the overtime pay rate.  The "White Collar Exemption" applies to executive, administrative, professional, outside sales, and computer employees who are paid a predetermined salary.  Previously if these employees made more than $455 per week ($23,660 per year) and met the duties test they were exempt from the overtime pay requirement.  The DOL's new overtime rule increases that threshold to $913 per week ($47,476 per year).  Future salary thresholds will be subject to inflation, and every three years the threshold will rise to the 40th wage percentile for full-time salaried workers in the country's lowest-wage region. 

    In addition, the new rule allows for the inclusion of nondiscretionary fringe benefits (including nondiscretionary bonuses, incentive payments and commissions) to satisfy up to 10 percent of the standard salary level.  To be included, these payments must be made on a quarterly or more frequent basis, but an employer is permitted to make a "catch-up" payment.   

    The final rule is not changing any of the existing job duty requirements to qualify for exemption; both the standard duties test and the HCE duties test remain unchanged.

    Some health care providers that rely predominantly on Medicaid funding will not be subject to the new overtime rule until March 17, 2019.  This "non-enforcement policy" period is due to limited funding concerns caused by the newly implemented requirements to make necessary enhancements to Medicaid home and community based systems.

    Employers have a range of options for responding to the new overtime rule.  For each affected employee newly entitled to overtime pay, employers may:

•    increase the salary of an employee who meets the duties test to at least the new salary level to retain exemption status;
•    pay an overtime premium of one and a half times the employee's regular rate for any overtime hours worked;
•    reduce or eliminate overtime hours, or implement controls to limit overtime hours;
•    reduce the amount of pay allocated to base salary (provided employees still earn the applicable hourly minimum wage) and add pay to account for overtime for hours worked, thereby holding total weekly pay constant; or
•    some combination of all the above.

Nothing in the new rule requires employers to change employees' pay to hourly from salaried even if an employees' classification changes from exempt to overtime eligible.

    If you have questions about the impact of the DOL's new overtime rule or how to implement any of the requirements mentioned above, contact a member of MacDonald Illig's Employment and Labor Practice Group.

The final rule is not changing any of the existing job duty requirements to qualify for exemption; the standard duties test remains unchanged.