Client Alert - New Overtime Rules Enjoined
Further to our Client Alert of November 15, 2016, a Federal judge in Texas has issued an injunction barring implementation of the new overtime rules. The rules will not be going into effect on December 1. The Department of Labor has said it is considering an appeal, but any resolution will be months away. And, of course, the change in Administration may result in further changes.
We will keep you informed as events unfold.
The text below corresponds to our Client Alert of November 15, 2016 and is provided for informational purposes.
Client Alert - New Overtime Rules
It has been widely publicized that the U.S. Department of Labor has updated its overtime rules, requiring overtime pay for millions of salaried workers who are now exempt. The rules are scheduled to go into effect on December 1, 2016, although there are attempts to push back that date. Most employers are making plans to implement the new rules.
The new rules do not change most definitions. They merely increase the salary levels for each category of affected worker. Since the salary levels have not been changed for over a decade, the adjustments are significant.
Required Overtime Pay
Most significant is the initial salary level below which all salaried workers are entitled to overtime pay (at a rate not less than one and one-half times their regular rate of pay) when they work more than 40 hours in the workweek. Note that hourly workers have always been, and continue to be, entitled to overtime pay.
The new rules will raise the initial salary threshold from $455 a week to $913 a week ($47,476 for a full-year worker). This amount will automatically be adjusted every three years, beginning January 1, 2020. Each update will raise the initial threshold to the 40th percentile of full-time salaried workers in the lowest-wage Census region, estimated to be $51,168 in 2020.
Thus, all salaried employees who currently earn less than $47,476 a year must receive overtime pay, irrespective of their job functions. The new rules will allow up to 10 percent of the initial salary threshold to be met by non-discretionary bonuses, incentive pay, or commissions, provided these payments are made on at least a quarterly basis. This is a change in Labor Department policy.
Highly Compensated Employees (HCE) Ineligible for Overtime Pay
The new rules also update the total annual compensation level above which most “white collar” workers will be ineligible for overtime. The final rule raises this level to the 90th percentile of full-time salaried workers nationally, or from the current $100,000 to $134,004 a year. This amount will also be adjusted starting in 2020, and will increase to the 90th percentile of full-time salaried workers nationally in that year, presently estimated to be $147,524.
Thus, in most instances salaried employees who currently earn more than $134,004 a year are not required to be paid overtime.
Exempt Salaried Employees
The new rules do not make any changes to the “duties test” that determines whether white collar salaried workers earning more than the initial salary threshold, but less than the HCE compensation threshold, are ineligible for overtime pay. All employees in this salary range who are properly classified as executive, administrative, or professional workers (for example, doctors, teachers, and lawyers) are exempt from the overtime pay requirements. Certain computer professionals and outside sales employees are also exempt. Those who are not in these categories are entitled to overtime pay even if they earn more than the initial threshold amount, so long as they do not fall into the HCE category.
|Salary Level||New Rules|
|Hourly workers||Overtime pay required|
|Less than $913 weekly salary ($47,476 per year)||Overtime pay required|
|Between $913 weekly salary ($47,476 per year) and $134,004 yearly salary||Overtime pay required, except executive, administrative and professional employees|
|Over $134,004 yearly salary (HCE)||Generally not required to be paid overtime|
For more information, contact Peter R. Porcino, or your CLL attorney.