ISSAlert May 18, 2016

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Department of Labor Issues Final Rule Revising Overtime Regulations

May 18, 2016                                    Contact: Bill Balek 

Today, the U.S. Department of Labor (DOL) issued its long awaited revisions to the Fair Labor Standard Act’s overtime pay regulations.  Specifically the final rule increases the salary threshold for standard overtime eligibility to $47,476—instead of the $50,440 figure originally proposed.  However, this token reduction in the salary threshold is still a 100% increase that will take place all at once when the new overtime regulations take effect on Dec. 1, 2016.

ISSA is deeply disappointed that the DOL largely ignored the concerns of tens of thousands of individuals and organizations across this country that expressed concern with the proposal.  The public record surrounding the rule is replete with comments, economic analysis, letters from Congress, and meetings and phone calls urging the administration to reconsider its proposal and more carefully examine the potential impact before proceeding.  Despite this strong and persistent opposition, the DOL published the final revisions to the overtime regulations with little substantive changes as evidenced by the summary below.

  • Standard Salary Level.  The final rule raises the standard salary threshold for executive, administrative and professional exemptions will be raised from $455 per week to $913 per week (which is the equivalent of $47,476 per year.
  • Highly Compensated Employees Salary Level. The final rule also increases the Highly Compensated Employee (HCE) salary level from the current $100,000 to $134,004 per year.  Of that amount, $913 per week must be paid on a salary basis.
  • Automatic Increases.  DOL’s final rule will also automatically increase the salary threshold every three years, beginning January 1, 2020. Each update will raise the standard threshold to the 40th percentile of full-time salaried workers in the lowest-wage Census region, estimated to be $51,168 in 2020. The HCE threshold will increase to the 90th percentile of full-time salaried workers nationally, estimated to be $147,524 in 2020.
  • Bonuses, Incentive Payments, and Commissions.  The final rule allows up to 10 percent of the salary threshold for non-HCE employees to be met by non-discretionary bonuses, incentive pay, or commissions, provided these payments are made on at least a quarterly basis.
  • Duties Test. The final rule does not make any changes to the “duties test” that determines whether white collar salaried workers earning more than the salary threshold are ineligible for overtime pay.

While the nation’s overtime rules are in need of being updated, ISSA remains concerned that today’s final rule will have a substantial adverse economic impact on employers and employees across the country.  Costs will soon increase for organizations operating on fixed budgets, forcing them to cut critical programming, staffing, and services. Millions of employees across the country will be reclassified from salaried to hourly workers and begin experiencing reduced opportunity and flexibility in the workplace.  Moreover, the rule’s automatic increases ignore wider economic variables or the reality of organizations and their specific budgetary constraints. These automatic updates threaten to impose serious hardships on public and private sector employers and employees without regard to economic circumstance of the time, which will have damaging consequences for the communities they serve.