New overtime rules will affect all employers

The Fair Labor Standards Act requires that employees who work in excess of 40 hours in a work week are paid at 1.5 times their regular rate of pay for those hours worked in excess of 40 hours. If the employees are employed in a bona fide executive, administrative, or professional capacity (white collar exemption) they are exempt from these requirements. The Department of Labor has revised the overtime regulations for white collar workers to determine whether an employee qualifies for the white collar exemption. To qualify for the exemption, an employee generally must:

  1. be salaried, meaning that they are paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the “salary basis test”);
  2. primarily perform executive, administrative, or professional duties, as defined in the Department of Labor’s regulations (the “duties test”); and
  3. be paid more than a specified weekly salary level, which is $913 per week (the equivalent of $47,476 annually for a full-year worker) under this Final Rule (the “salary level test”).

The current regulations set the salary level at $455 per week instead of $913 per week. If the employee met the other requirements and was paid more than $455 per week, they were exempted from the overtime pay requirements. With the new regulations, which will be effective December 1, 2016, employees will have to make more than $47,476 and meet the “salary basis” and the “duties test” to be considered exempt from overtime pay.

With the new rule, the salary threshold will be updated automatically every three years so that the salary level will be set at the 40th percentile of full-time salaried workers in the lowest-wage census region. Firms should therefore take the necessary steps to make sure that they are in compliance with the proposed new rules by December 1.

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